[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4954 Engrossed in House (EH)]


  2d Session

                               H. R. 4954

_______________________________________________________________________

                                 AN ACT

   To amend title XVIII of the Social Security Act to provide for a 
  voluntary program for prescription drug coverage under the Medicare 
Program, to modernize and reform payments and the regulatory structure 
            of the Medicare Program, and for other purposes.
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
107th CONGRESS
  2d Session
                                H. R. 4954

_______________________________________________________________________

                                 AN ACT


 
   To amend title XVIII of the Social Security Act to provide for a 
  voluntary program for prescription drug coverage under the Medicare 
Program, to modernize and reform payments and the regulatory structure 
            of the Medicare Program, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES 
              TO BIPA AND SECRETARY; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare 
Modernization and Prescription Drug Act of 2002''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this Act an amendment is expressed 
in terms of an amendment to or repeal of a section or other provision, 
the reference shall be considered to be made to that section or other 
provision of the Social Security Act.
    (c) BIPA; Secretary.--In this Act:
            (1) BIPA.--The term ``BIPA'' means the Medicare, Medicaid, 
        and SCHIP Benefits Improvement and Protection Act of 2000, as 
        enacted into law by section 1(a)(6) of Public Law 106-554.
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (d) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; amendments to Social Security Act; references to 
                            BIPA and Secretary; table of contents.
              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Sec. 101. Establishment of a medicare prescription drug benefit.
Sec. 102. Offering of qualified prescription drug coverage under the 
                            Medicare+Choice program.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap transition.
Sec. 105. Medicare prescription drug discount card endorsement program.
Sec. 106. GAO study of the effectiveness of the new prescription drug 
                            program.
     TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE 
                          COMPETITION PROGRAM

               Subtitle A--Medicare+Choice Revitalization

Sec. 201. Medicare+Choice improvements.
Sec. 202. Making permanent change in Medicare+Choice reporting 
                            deadlines and annual, coordinated election 
                            period.
Sec. 203. Avoiding duplicative State regulation.
Sec. 204. Specialized Medicare+Choice plans for special needs 
                            beneficiaries.
Sec. 205. Medicare MSAs.
Sec. 206. Extension of reasonable cost and SHMO contracts.
            Subtitle B--Medicare+Choice Competition Program

Sec. 211. Medicare+Choice competition program.
Sec. 212. Demonstration program for competitive-demonstration areas.
Sec. 213. Conforming amendments.
               TITLE III--RURAL HEALTH CARE IMPROVEMENTS

Sec. 301. Reference to full market basket increase for sole community 
                            hospitals.
Sec. 302. Enhanced disproportionate share hospital (DSH) treatment for 
                            rural hospitals and urban hospitals with 
                            fewer than 100 beds.
Sec. 303. 2-year phased-in increase in the standardized amount in rural 
                            and small urban areas to achieve a single, 
                            uniform standardized amount.
Sec. 304. More frequent update in weights used in hospital market 
                            basket.
Sec. 305. Improvements to critical access hospital program.
Sec. 306. Extension of temporary increase for home health services 
                            furnished in a rural area.
Sec. 307. Reference to 10 percent increase in payment for hospice care 
                            furnished in a frontier area and rural 
                            hospice demonstration project.
Sec. 308. Reference to priority for hospitals located in rural or small 
                            urban areas in redistribution of unused 
                            graduate medical education residencies.
Sec. 309. GAO study of geographic differences in payments for 
                            physicians' services.
Sec. 310. Providing safe harbor for certain collaborative efforts that 
                            benefit medically underserved populations.
Sec. 311. Relief for certain non-teaching hospitals.
                TITLE IV--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

Sec. 401. Revision of acute care hospital payment updates.
Sec. 402. 2-year increase in level of adjustment for indirect costs of 
                            medical education (IME).
Sec. 403. Recognition of new medical technologies under inpatient 
                            hospital PPS.
Sec. 404. Phase-in of Federal rate for hospitals in Puerto Rico.
Sec. 405. Reference to provision relating to enhanced disproportionate 
                            share hospital (DSH) payments for rural 
                            hospitals and urban hospitals with fewer 
                            than 100 beds.
Sec. 406. Reference to provision relating to 2-year phased-in increase 
                            in the standardized amount in rural and 
                            small urban areas to achieve a single, 
                            uniform standardized amount.
Sec. 407. Reference to provision for more frequent updates in the 
                            weights used in hospital market basket.
Sec. 408. Reference to provision making improvements to critical access 
                            hospital program.
Sec. 409. GAO study on improving the hospital wage index.
             Subtitle B--Skilled Nursing Facility Services

Sec. 411. Payment for covered skilled nursing facility services.
                          Subtitle C--Hospice

Sec. 421. Coverage of hospice consultation services.
Sec. 422. 10 percent increase in payment for hospice care furnished in 
                            a frontier area.
Sec. 423. Rural hospice demonstration project.
                      Subtitle D--Other Provisions

Sec. 431. Demonstration project for use of recovery audit contractors 
                            for part A services.
                 TITLE V--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

Sec. 501. Revision of updates for physicians' services.
Sec. 502. Studies on access to physicians' services.
Sec. 503. MedPAC report on payment for physicians' services.
Sec. 504. 1-year extension of treatment of certain physician pathology 
                            services under medicare.
Sec. 505. Physician fee schedule wage index revision.
                       Subtitle B--Other Services

Sec. 511. Competitive acquisition of certain items and services.
Sec. 512. Payment for ambulance services.
Sec. 513. 2-year extension of moratorium on therapy caps; provisions 
                            relating to reports.
Sec. 514. Coverage of an initial preventive physical examination.
Sec. 515. Renal dialysis services.
Sec. 516. Improved payment for certain mammography services.
Sec. 517. Waiver of part B late enrollment penalty for certain military 
                            retirees; special enrollment period.
Sec. 518. Coverage of cholesterol and blood lipid screening.
             TITLE VI--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 601. Elimination of 15 percent reduction in payment rates under 
                            the prospective payment system.
Sec. 602. Update in home health services.
Sec. 603. OASIS Task Force; suspension of certain OASIS data collection 
                            requirements pending Task Force submittal 
                            of report.
Sec. 604. MedPAC study on medicare margins of home health agencies.
Sec. 605. Clarification of treatment of occasional absences in 
                            determining whether an individual is 
                            confined to the home.
             Subtitle B--Direct Graduate Medical Education

Sec. 611. Extension of update limitation on high cost programs.
Sec. 612. Redistribution of unused resident positions.
                      Subtitle C--Other Provisions

Sec. 621. Modifications to Medicare Payment Advisory Commission 
                            (MedPAC).
Sec. 622. Demonstration project for disease management for certain 
                            medicare beneficiaries with diabetes.
Sec. 623. Demonstration project for medical adult day care services.
Sec. 624. Publication on final written guidance concerning prohibitions 
                            against discrimination by national origin 
                            with respect to health care services.
              TITLE VII--MEDICARE BENEFITS ADMINISTRATION

Sec. 701. Establishment of Medicare Benefits Administration.
        TITLE VIII--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

Sec. 801. Construction; definition of supplier.
Sec. 802. Issuance of regulations.
Sec. 803. Compliance with changes in regulations and policies.
Sec. 804. Reports and studies relating to regulatory reform.
                     Subtitle B--Contracting Reform

Sec. 811. Increased flexibility in medicare administration.
Sec. 812. Requirements for information security for medicare 
                            administrative contractors.
                   Subtitle C--Education and Outreach

Sec. 821. Provider education and technical assistance.
Sec. 822. Small provider technical assistance demonstration program.
Sec. 823. Medicare provider ombudsman; medicare beneficiary ombudsman.
Sec. 824. Beneficiary outreach demonstration program.
                    Subtitle D--Appeals and Recovery

Sec. 831. Transfer of responsibility for medicare appeals.
Sec. 832. Process for expedited access to review.
Sec. 833. Revisions to medicare appeals process.
Sec. 834. Prepayment review.
Sec. 835. Recovery of overpayments.
Sec. 836. Provider enrollment process; right of appeal.
Sec. 837. Process for correction of minor errors and omissions on 
                            claims without pursuing appeals process.
Sec. 838. Prior determination process for certain items and services; 
                            advance beneficiary notices.
                  Subtitle E--Miscellaneous Provisions

Sec. 841. Policy development regarding evaluation and management (E & 
                            M) documentation guidelines.
Sec. 842. Improvement in oversight of technology and coverage.
Sec. 843. Treatment of hospitals for certain services under medicare 
                            secondary payor (MSP) provisions.
Sec. 844. EMTALA improvements.
Sec. 845. Emergency Medical Treatment and Labor Act (EMTALA) Technical 
                            Advisory Group.
Sec. 846. Authorizing use of arrangements with other hospice programs 
                            to provide core hospice services in certain 
                            circumstances.
Sec. 847. Application of OSHA bloodborne pathogens standard to certain 
                            hospitals.
Sec. 848. BIPA-related technical amendments and corrections.
Sec. 849. Conforming authority to waive a program exclusion.
Sec. 850. Treatment of certain dental claims.
Sec. 851. Annual publication of list of national coverage 
                            determinations.
                     TITLE IX--MEDICAID PROVISIONS

Sec. 901. National Bipartisan Commission on the Future of Medicaid.
Sec. 902. Disproportionate share hospital (DSH) payments.
Sec. 903. Medicaid pharmacy assistance program.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION DRUG BENEFIT.

    (a) In General.--Title XVIII is amended--
            (1) by redesignating part D as part E; and
            (2) by inserting after part C the following new part:

         ``Part D--Voluntary Prescription Drug Benefit Program

``SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT; AND COVERAGE PERIOD.

    ``(a) Provision of Qualified Prescription Drug Coverage Through 
Enrollment in Plans.--Subject to the succeeding provisions of this 
part, each individual who is entitled to benefits under part A or is 
enrolled under part B is entitled to obtain qualified prescription drug 
coverage (described in section 1860B(a)) as follows:
            ``(1) Medicare+choice plan.--If the individual is eligible 
        to enroll in a Medicare+Choice plan that provides qualified 
        prescription drug coverage under section 1851(j), the 
        individual may enroll in the plan and obtain coverage through 
        such plan.
            ``(2) Prescription drug plan.--If the individual is not 
        enrolled in a Medicare+Choice plan that provides qualified 
        prescription drug coverage, the individual may enroll under 
        this part in a prescription drug plan (as defined in section 
        1860J(a)(5)).
Such individuals shall have a choice of such plans under section 
1860E(d).
    ``(b) General Election Procedures.--
            ``(1) In general.--An individual eligible to make an 
        election under subsection (a) may elect to enroll in a 
        prescription drug plan under this part, or elect the option of 
        qualified prescription drug coverage under a Medicare+Choice 
        plan under part C, and to change such election only in such 
        manner and form as may be prescribed by regulations of the 
        Administrator of the Medicare Benefits Administration 
        (appointed under section 1808(b)) (in this part referred to as 
        the `Medicare Benefits Administrator') and only during an 
        election period prescribed in or under this subsection.
            ``(2) Election periods.--
                    ``(A) In general.--Except as provided in this 
                paragraph, the election periods under this subsection 
                shall be the same as the coverage election periods 
                under the Medicare+Choice program under section 
                1851(e), including--
                            ``(i) annual coordinated election periods; 
                        and
                            ``(ii) special election periods.
                In applying the last sentence of section 1851(e)(4) 
                (relating to discontinuance of a Medicare+Choice 
                election during the first year of eligibility) under 
                this subparagraph, in the case of an election described 
                in such section in which the individual had elected or 
                is provided qualified prescription drug coverage at the 
                time of such first enrollment, the individual shall be 
                permitted to enroll in a prescription drug plan under 
                this part at the time of the election of coverage under 
                the original fee-for-service plan.
                    ``(B) Initial election periods.--
                            ``(i) Individuals currently covered.--In 
                        the case of an individual who is entitled to 
                        benefits under part A or enrolled under part B 
                        as of November 1, 2004, there shall be an 
                        initial election period of 6 months beginning 
                        on that date.
                            ``(ii) Individual covered in future.--In 
                        the case of an individual who is first entitled 
                        to benefits under part A or enrolled under part 
                        B after such date, there shall be an initial 
                        election period which is the same as the 
                        initial enrollment period under section 
                        1837(d).
                    ``(C) Additional special election periods.--The 
                Administrator shall establish special election 
                periods--
                            ``(i) in cases of individuals who have and 
                        involuntarily lose prescription drug coverage 
                        described in subsection (c)(2)(C);
                            ``(ii) in cases described in section 
                        1837(h) (relating to errors in enrollment), in 
                        the same manner as such section applies to part 
                        B;
                            ``(iii) in the case of an individual who 
                        meets such exceptional conditions (including 
                        conditions provided under section 
                        1851(e)(4)(D)) as the Administrator may 
                        provide; and
                            ``(iv) in cases of individuals (as 
                        determined by the Administrator) who become 
                        eligible for prescription drug assistance under 
                        title XIX under section 1935(d).
            ``(3) Information on plans.--Information described in 
        section 1860C(b)(1) on prescription drug plans shall be made 
        available during open enrollment periods.
    ``(c) Guaranteed Issue; Community Rating; and Nondiscrimination.--
            ``(1) Guaranteed issue.--
                    ``(A) In general.--An eligible individual who is 
                eligible to elect qualified prescription drug coverage 
                under a prescription drug plan or Medicare+Choice plan 
                at a time during which elections are accepted under 
                this part with respect to the plan shall not be denied 
                enrollment based on any health status-related factor 
                (described in section 2702(a)(1) of the Public Health 
                Service Act) or any other factor.
                    ``(B) Medicare+choice limitations permitted.--The 
                provisions of paragraphs (2) and (3) (other than 
                subparagraph (C)(i), relating to default enrollment) of 
                section 1851(g) (relating to priority and limitation on 
                termination of election) shall apply to PDP sponsors 
                under this subsection.
            ``(2) Community-rated premium.--
                    ``(A) In general.--In the case of an individual who 
                maintains (as determined under subparagraph (C)) 
                continuous prescription drug coverage since the date 
                the individual first qualifies to elect prescription 
                drug coverage under this part, a PDP sponsor or 
                Medicare+Choice organization offering a prescription 
                drug plan or Medicare+Choice plan that provides 
                qualified prescription drug coverage and in which the 
                individual is enrolled may not deny, limit, or 
                condition the coverage or provision of covered 
                prescription drug benefits or vary or increase the 
                premium under the plan based on any health status-
                related factor described in section 2702(a)(1) of the 
                Public Health Service Act or any other factor.
                    ``(B) Late enrollment penalty.--In the case of an 
                individual who does not maintain such continuous 
                prescription drug coverage (as described in 
                subparagraph (C)), a PDP sponsor or Medicare+Choice 
                organization may (notwithstanding any provision in this 
                title) adjust the premium otherwise applicable or 
                impose a pre-existing condition exclusion with respect 
                to qualified prescription drug coverage in a manner 
                that reflects additional actuarial risk involved. Such 
                a risk shall be established through an appropriate 
                actuarial opinion of the type described in 
                subparagraphs (A) through (C) of section 2103(c)(4).
                    ``(C) Continuous prescription drug coverage.--An 
                individual is considered for purposes of this part to 
                be maintaining continuous prescription drug coverage on 
                and after the date the individual first qualifies to 
                elect prescription drug coverage under this part if the 
                individual establishes that as of such date the 
                individual is covered under any of the following 
                prescription drug coverage and before the date that is 
                the last day of the 63-day period that begins on the 
                date of termination of the particular prescription drug 
                coverage involved (regardless of whether the individual 
                subsequently obtains any of the following prescription 
                drug coverage):
                            ``(i) Coverage under prescription drug plan 
                        or medicare+choice plan.--Qualified 
                        prescription drug coverage under a prescription 
                        drug plan or under a Medicare+Choice plan.
                            ``(ii) Medicaid prescription drug 
                        coverage.--Prescription drug coverage under a 
                        medicaid plan under title XIX, including 
                        through the Program of All-inclusive Care for 
                        the Elderly (PACE) under section 1934, through 
                        a social health maintenance organization 
                        (referred to in section 4104(c) of the Balanced 
                        Budget Act of 1997), or through a 
                        Medicare+Choice project that demonstrates the 
                        application of capitation payment rates for 
                        frail elderly medicare beneficiaries through 
                        the use of a interdisciplinary team and through 
                        the provision of primary care services to such 
                        beneficiaries by means of such a team at the 
                        nursing facility involved.
                            ``(iii) Prescription drug coverage under 
                        group health plan.--Any outpatient prescription 
                        drug coverage under a group health plan, 
                        including a health benefits plan under the 
                        Federal Employees Health Benefit Plan under 
                        chapter 89 of title 5, United States Code, and 
                        a qualified retiree prescription drug plan as 
                        defined in section 1860H(f)(1), but only if 
                        (subject to subparagraph (E)(ii)) the coverage 
                        provides benefits at least equivalent to the 
                        benefits under a qualified prescription drug 
                        plan.
                            ``(iv) Prescription drug coverage under 
                        certain medigap policies.--Coverage under a 
                        medicare supplemental policy under section 1882 
                        that provides benefits for prescription drugs 
                        (whether or not such coverage conforms to the 
                        standards for packages of benefits under 
                        section 1882(p)(1)), but only if the policy was 
                        in effect on January 1, 2005, and if (subject 
                        to subparagraph (E)(ii)) the coverage provides 
                        benefits at least equivalent to the benefits 
                        under a qualified prescription drug plan.
                            ``(v) State pharmaceutical assistance 
                        program.--Coverage of prescription drugs under 
                        a State pharmaceutical assistance program, but 
                        only if (subject to subparagraph (E)(ii)) the 
                        coverage provides benefits at least equivalent 
                        to the benefits under a qualified prescription 
                        drug plan.
                            ``(vi) Veterans' coverage of prescription 
                        drugs.--Coverage of prescription drugs for 
                        veterans under chapter 17 of title 38, United 
                        States Code, but only if (subject to 
                        subparagraph (E)(ii)) the coverage provides 
                        benefits at least equivalent to the benefits 
                        under a qualified prescription drug plan.
                    ``(D) Certification.--For purposes of carrying out 
                this paragraph, the certifications of the type 
                described in sections 2701(e) of the Public Health 
                Service Act and in section 9801(e) of the Internal 
                Revenue Code shall also include a statement for the 
                period of coverage of whether the individual involved 
                had prescription drug coverage described in 
                subparagraph (C).
                    ``(E) Disclosure.--
                            ``(i) In general.--Each entity that offers 
                        coverage of the type described in clause (iii), 
                        (iv), (v), or (vi) of subparagraph (C) shall 
                        provide for disclosure, consistent with 
                        standards established by the Administrator, of 
                        whether such coverage provides benefits at 
                        least equivalent to the benefits under a 
                        qualified prescription drug plan.
                            ``(ii) Waiver of limitations.--An 
                        individual may apply to the Administrator to 
                        waive the requirement that coverage of such 
                        type provide benefits at least equivalent to 
                        the benefits under a qualified prescription 
                        drug plan, if the individual establishes that 
                        the individual was not adequately informed that 
                        such coverage did not provide such level of 
                        benefits.
                    ``(F) Construction.--Nothing in this section shall 
                be construed as preventing the disenrollment of an 
                individual from a prescription drug plan or a 
                Medicare+Choice plan based on the termination of an 
                election described in section 1851(g)(3), including for 
                non-payment of premiums or for other reasons specified 
                in subsection (d)(3), which takes into account a grace 
                period described in section 1851(g)(3)(B)(i).
            ``(3) Nondiscrimination.--A PDP sponsor offering a 
        prescription drug plan shall not establish a service area in a 
        manner that would discriminate based on health or economic 
        status of potential enrollees.
    ``(d) Effective Date of Elections.--
            ``(1) In general.--Except as provided in this section, the 
        Administrator shall provide that elections under subsection (b) 
        take effect at the same time as the Administrator provides that 
        similar elections under section 1851(e) take effect under 
        section 1851(f).
            ``(2) No election effective before 2005.--In no case shall 
        any election take effect before January 1, 2005.
            ``(3) Termination.--The Administrator shall provide for the 
        termination of an election in the case of--
                    ``(A) termination of coverage under both part A and 
                part B; and
                    ``(B) termination of elections described in section 
                1851(g)(3) (including failure to pay required 
                premiums).

``SEC. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE.

    ``(a) Requirements.--
            ``(1) In general.--For purposes of this part and part C, 
        the term `qualified prescription drug coverage' means either of 
        the following:
                    ``(A) Standard coverage with access to negotiated 
                prices.--Standard coverage (as defined in subsection 
                (b)) and access to negotiated prices under subsection 
                (d).
                    ``(B) Actuarially equivalent coverage with access 
                to negotiated prices.--Coverage of covered outpatient 
                drugs which meets the alternative coverage requirements 
                of subsection (c) and access to negotiated prices under 
                subsection (d), but only if it is approved by the 
                Administrator, as provided under subsection (c).
            ``(2) Permitting additional outpatient prescription drug 
        coverage.--
                    ``(A) In general.--Subject to subparagraph (B), 
                nothing in this part shall be construed as preventing 
                qualified prescription drug coverage from including 
                coverage of covered outpatient drugs that exceeds the 
                coverage required under paragraph (1), but any such 
                additional coverage shall be limited to coverage of 
                covered outpatient drugs.
                    ``(B) Disapproval authority.--The Administrator 
                shall review the offering of qualified prescription 
                drug coverage under this part or part C. If the 
                Administrator finds that, in the case of a qualified 
                prescription drug coverage under a prescription drug 
                plan or a Medicare+Choice plan, that the organization 
                or sponsor offering the coverage is engaged in 
                activities intended to discourage enrollment of classes 
                of eligible medicare beneficiaries obtaining coverage 
                through the plan on the basis of their higher 
                likelihood of utilizing prescription drug coverage, the 
                Administrator may terminate the contract with the 
                sponsor or organization under this part or part C.
            ``(3) Application of secondary payor provisions.--The 
        provisions of section 1852(a)(4) shall apply under this part in 
        the same manner as they apply under part C.
    ``(b) Standard Coverage.--For purposes of this part, the `standard 
coverage' is coverage of covered outpatient drugs (as defined in 
subsection (f)) that meets the following requirements:
            ``(1) Deductible.--The coverage has an annual deductible--
                    ``(A) for 2005, that is equal to $250; or
                    ``(B) for a subsequent year, that is equal to the 
                amount specified under this paragraph for the previous 
                year increased by the percentage specified in paragraph 
                (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $10 shall be rounded to the nearest multiple of 
        $10.
            ``(2) Limits on cost-sharing.--
                    ``(A) In general.--The coverage has cost-sharing 
                (for costs above the annual deductible specified in 
                paragraph (1) and up to the initial coverage limit 
                under paragraph (3)) as follows:
                            ``(i) First copayment range.--For costs 
                        above the annual deductible specified in 
                        paragraph (1) and up to amount specified in 
                        subparagraph (C), the cost-sharing--
                                    ``(I) is equal to 20 percent; or
                                    ``(II) is actuarially equivalent 
                                (using processes established under 
                                subsection (e)) to an average expected 
                                payment of 20 percent of such costs.
                            ``(ii) Secondary copayment range.--For 
                        costs above the amount specified in 
                        subparagraph (C) and up to the initial coverage 
                        limit, the cost-sharing--
                                    ``(I) is equal to 50 percent; or
                                    ``(II) is actuarially consistent 
                                (using processes established under 
                                subsection (e)) with an average 
                                expected payment of 50 percent of such 
                                costs.
                    ``(B) Use of tiered copayments.--Nothing in this 
                part shall be construed as preventing a PDP sponsor 
                from applying tiered copayments, so long as such tiered 
                copayments are consistent with subparagraph (A).
                    ``(C) Initial copayment threshold.--The amount 
                specified in this subparagraph--
                            ``(i) for 2005, is equal to $1,000; or
                            ``(ii) for a subsequent year, is equal to 
                        the amount specified in this subparagraph for 
                        the previous year, increased by the annual 
                        percentage increase described in paragraph (5) 
                        for the year involved.
                Any amount determined under clause (ii) that is not a 
                multiple of $10 shall be rounded to the nearest 
                multiple of $10.
            ``(3) Initial coverage limit.--Subject to paragraph (4), 
        the coverage has an initial coverage limit on the maximum costs 
        that may be recognized for payment purposes--
                    ``(A) for 2005, that is equal to $2,000; or
                    ``(B) for a subsequent year, that is equal to the 
                amount specified in this paragraph for the previous 
                year, increased by the annual percentage increase 
                described in paragraph (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $25 shall be rounded to the nearest multiple of 
        $25.
            ``(4) Catastrophic protection.--
                    ``(A) In general.--Notwithstanding paragraph (3), 
                the coverage provides benefits with no cost-sharing 
                after the individual has incurred costs (as described 
                in subparagraph (C)) for covered outpatient drugs in a 
                year equal to the annual out-of-pocket threshold 
                specified in subparagraph (B).
                    ``(B) Annual out-of-pocket threshold.--For purposes 
                of this part, the `annual out-of-pocket threshold' 
                specified in this subparagraph--
                            ``(i) for 2005, is equal to $3,700; or
                            ``(ii) for a subsequent year, is equal to 
                        the amount specified in this subparagraph for 
                        the previous year, increased by the annual 
                        percentage increase described in paragraph (5) 
                        for the year involved.
                Any amount determined under clause (ii) that is not a 
                multiple of $100 shall be rounded to the nearest 
                multiple of $100.
                    ``(C) Application.--In applying subparagraph (A)--
                            ``(i) incurred costs shall only include 
                        costs incurred for the annual deductible 
                        (described in paragraph (1)), cost-sharing 
                        (described in paragraph (2)), and amounts for 
                        which benefits are not provided because of the 
                        application of the initial coverage limit 
                        described in paragraph (3); and
                            ``(ii) such costs shall be treated as 
                        incurred only if they are paid by the 
                        individual (or by another individual, such as a 
                        family member, on behalf of the individual), 
                        under section 1860G, or under title XIX and the 
                        individual (or other individual) is not 
                        reimbursed through insurance or otherwise, a 
                        group health plan, or other third-party payment 
                        arrangement for such costs.
            ``(5) Annual percentage increase.--For purposes of this 
        part, the annual percentage increase specified in this 
        paragraph for a year is equal to the annual percentage increase 
        in average per capita aggregate expenditures for covered 
        outpatient drugs in the United States for medicare 
        beneficiaries, as determined by the Administrator for the 12-
        month period ending in July of the previous year.
    ``(c) Alternative Coverage Requirements.--A prescription drug plan 
or Medicare+Choice plan may provide a different prescription drug 
benefit design from the standard coverage described in subsection (b) 
so long as the Administrator determines (based on an actuarial analysis 
by the Administrator) that the following requirements are met and the 
plan applies for, and receives, the approval of the Administrator for 
such benefit design:
            ``(1) Assuring at least actuarially equivalent coverage.--
                    ``(A) Assuring equivalent value of total 
                coverage.--The actuarial value of the total coverage 
                (as determined under subsection (e)) is at least equal 
                to the actuarial value (as so determined) of standard 
                coverage.
                    ``(B) Assuring equivalent unsubsidized value of 
                coverage.--The unsubsidized value of the coverage is at 
                least equal to the unsubsidized value of standard 
                coverage. For purposes of this subparagraph, the 
                unsubsidized value of coverage is the amount by which 
                the actuarial value of the coverage (as determined 
                under subsection (e)) exceeds the actuarial value of 
                the subsidy payments under section 1860H with respect 
                to such coverage.
                    ``(C) Assuring standard payment for costs at 
                initial coverage limit.--The coverage is designed, 
                based upon an actuarially representative pattern of 
                utilization (as determined under subsection (e)), to 
                provide for the payment, with respect to costs incurred 
                that are equal to the initial coverage limit under 
                subsection (b)(3), of an amount equal to at least the 
                sum of the following products:
                            ``(i) First copayment range.--The product 
                        of--
                                    ``(I) the amount by which the 
                                initial copayment threshold described 
                                in subsection (b)(2)(C) exceeds the 
                                deductible described in subsection 
                                (b)(1); and
                                    ``(II) 100 percent minus the cost-
                                sharing percentage specified in 
                                subsection (b)(2)(A)(i)(I).
                            ``(ii) Secondary copayment range.--The 
                        product of--
                                    ``(I) the amount by which the 
                                initial coverage limit described in 
                                subsection (b)(3) exceeds the initial 
                                copayment threshold described in 
                                subsection (b)(2)(C); and
                                    ``(II) 100 percent minus the cost-
                                sharing percentage specified in 
                                subsection (b)(2)(A)(ii)(I).
            ``(2) Catastrophic protection.--The coverage provides for 
        beneficiaries the catastrophic protection described in 
        subsection (b)(4).
    ``(d) Access to Negotiated Prices.--
            ``(1) In general.--Under qualified prescription drug 
        coverage offered by a PDP sponsor or a Medicare+Choice 
        organization, the sponsor or organization shall provide 
        beneficiaries with access to negotiated prices (including 
        applicable discounts) used for payment for covered outpatient 
        drugs, regardless of the fact that no benefits may be payable 
        under the coverage with respect to such drugs because of the 
        application of cost-sharing or an initial coverage limit 
        (described in subsection (b)(3)). Insofar as a State elects to 
        provide medical assistance under title XIX for a drug based on 
        the prices negotiated by a prescription drug plan under this 
        part, the requirements of section 1927 shall not apply to such 
        drugs. The prices negotiated by a prescription drug plan under 
        this part, by a Medicare+Choice plan with respect to covered 
        outpatient drugs, or by a qualified retiree prescription drug 
        plan (as defined in section 1860H(f)(1)) with respect to such 
        drugs on behalf of individuals entitled to benefits under part 
        A or enrolled under part B, shall (notwithstanding any other 
        provision of law) not be taken into account for the purposes of 
        establishing the best price under section 1927(c)(1)(C).
            ``(2) Disclosure.--The PDP sponsor or Medicare+Choice 
        organization shall disclose to the Administrator (in a manner 
        specified by the Administrator) the extent to which discounts 
        or rebates made available to the sponsor or organization by a 
        manufacturer are passed through to enrollees through pharmacies 
        and other dispensers or otherwise. The provisions of section 
        1927(b)(3)(D) shall apply to information disclosed to the 
        Administrator under this paragraph in the same manner as such 
        provisions apply to information disclosed under such section.
    ``(e) Actuarial Valuation; Determination of Annual Percentage 
Increases.--
            ``(1) Processes.--For purposes of this section, the 
        Administrator shall establish processes and methods--
                    ``(A) for determining the actuarial valuation of 
                prescription drug coverage, including--
                            ``(i) an actuarial valuation of standard 
                        coverage and of the reinsurance subsidy 
                        payments under section 1860H;
                            ``(ii) the use of generally accepted 
                        actuarial principles and methodologies; and
                            ``(iii) applying the same methodology for 
                        determinations of alternative coverage under 
                        subsection (c) as is used with respect to 
                        determinations of standard coverage under 
                        subsection (b); and
                    ``(B) for determining annual percentage increases 
                described in subsection (b)(5).
            ``(2) Use of outside actuaries.--Under the processes under 
        paragraph (1)(A), PDP sponsors and Medicare+Choice 
        organizations may use actuarial opinions certified by 
        independent, qualified actuaries to establish actuarial values, 
        but the Administrator shall determine whether such actuarial 
        values meet the requirements under subsection (c)(1).
    ``(f) Covered Outpatient Drugs Defined.--
            ``(1) In general.--Except as provided in this subsection, 
        for purposes of this part, the term `covered outpatient drug' 
        means--
                    ``(A) a drug that may be dispensed only upon a 
                prescription and that is described in subparagraph 
                (A)(i) or (A)(ii) of section 1927(k)(2); or
                    ``(B) a biological product described in clauses (i) 
                through (iii) of subparagraph (B) of such section or 
                insulin described in subparagraph (C) of such section,
        and such term includes a vaccine licensed under section 351 of 
        the Public Health Service Act and any use of a covered 
        outpatient drug for a medically accepted indication (as defined 
        in section 1927(k)(6)).
            ``(2) Exclusions.--
                    ``(A) In general.--Such term does not include drugs 
                or classes of drugs, or their medical uses, which may 
                be excluded from coverage or otherwise restricted under 
                section 1927(d)(2), other than subparagraph (E) thereof 
                (relating to smoking cessation agents), or under 
                section 1927(d)(3).
                    ``(B) Avoidance of duplicate coverage.--A drug 
                prescribed for an individual that would otherwise be a 
                covered outpatient drug under this part shall not be so 
                considered if payment for such drug is available under 
                part A or B for an individual entitled to benefits 
                under part A and enrolled under part B.
            ``(3) Application of formulary restrictions.--A drug 
        prescribed for an individual that would otherwise be a covered 
        outpatient drug under this part shall not be so considered 
        under a plan if the plan excludes the drug under a formulary 
        and such exclusion is not successfully appealed under section 
        1860C(f)(2).
            ``(4) Application of general exclusion provisions.--A 
        prescription drug plan or Medicare+Choice plan may exclude from 
        qualified prescription drug coverage any covered outpatient 
        drug--
                    ``(A) for which payment would not be made if 
                section 1862(a) applied to part D; or
                    ``(B) which are not prescribed in accordance with 
                the plan or this part.
        Such exclusions are determinations subject to reconsideration 
        and appeal pursuant to section 1860C(f).

``SEC. 1860C. BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG 
              COVERAGE.

    ``(a) Guaranteed Issue, Community-Rated Premiums, Access to 
Negotiated Prices, and Nondiscrimination.--For provisions requiring 
guaranteed issue, community-rated premiums, access to negotiated 
prices, and nondiscrimination, see sections 1860A(c)(1), 1860A(c)(2), 
1860B(d), and 1860F(b), respectively.
    ``(b) Dissemination of Information.--
            ``(1) General information.--A PDP sponsor shall disclose, 
        in a clear, accurate, and standardized form to each enrollee 
        with a prescription drug plan offered by the sponsor under this 
        part at the time of enrollment and at least annually 
        thereafter, the information described in section 1852(c)(1) 
        relating to such plan. Such information includes the following:
                    ``(A) Access to covered outpatient drugs, including 
                access through pharmacy networks.
                    ``(B) How any formulary used by the sponsor 
                functions, including the drugs included in the 
                formulary.
                    ``(C) Co-payments and deductible requirements, 
                including the identification of the tiered or other co-
                payment level applicable to each drug (or class of 
                drugs).
                    ``(D) Grievance and appeals procedures.
        Such information shall also be made available on request to 
        prospective enrollees during annual open enrollment periods.
            ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request of an 
        individual eligible to enroll under a prescription drug plan, 
        the PDP sponsor shall provide the information described in 
        section 1852(c)(2) (other than subparagraph (D)) to such 
        individual.
            ``(3) Response to beneficiary questions.--Each PDP sponsor 
        offering a prescription drug plan shall have a mechanism for 
        providing specific information to enrollees upon request. The 
        sponsor shall make available on a timely basis, through an 
        Internet website and in writing upon request, information on 
        specific changes in its formulary.
            ``(4) Claims information.--Each PDP sponsor offering a 
        prescription drug plan must furnish to enrolled individuals in 
        a form easily understandable to such individuals an explanation 
        of benefits (in accordance with section 1806(a) or in a 
        comparable manner) and a notice of the benefits in relation to 
        initial coverage limit and annual out-of-pocket threshold for 
        the current year, whenever prescription drug benefits are 
        provided under this part (except that such notice need not be 
        provided more often than monthly).
    ``(c) Access to Covered Benefits.--
            ``(1) Assuring pharmacy access.--
                    ``(A) In general.--The PDP sponsor of the 
                prescription drug plan shall secure the participation 
                in its network of a sufficient number of pharmacies 
                that dispense (other than by mail order) drugs directly 
                to patients to ensure convenient access (as determined 
                by the Administrator and including adequate emergency 
                access) for enrolled beneficiaries, in accordance with 
                standards established under section 1860D(e) that 
                ensure such convenient access.
                    ``(B) Use of point-of-service system.--A PDP 
                sponsor shall establish an optional point-of-service 
                method of operation under which--
                            ``(i) the plan provides access to any or 
                        all pharmacies that are not participating 
                        pharmacies in its network; and
                            ``(ii) the plan may charge beneficiaries 
                        through adjustments in premiums and copayments 
                        any additional costs associated with the point-
                        of-service option.
                The additional copayments so charged shall not count 
                toward the application of section 1860B(b).
            ``(2) Use of standardized technology.--
                    ``(A) In general.--The PDP sponsor of a 
                prescription drug plan shall issue (and reissue, as 
                appropriate) such a card (or other technology) that may 
                be used by an enrolled beneficiary to assure access to 
                negotiated prices under section 1860B(d) for the 
                purchase of prescription drugs for which coverage is 
                not otherwise provided under the prescription drug 
                plan.
                    ``(B) Standards.--
                            ``(i) Development.--The Administrator shall 
                        provide for the development of national 
                        standards relating to a standardized format for 
                        the card or other technology referred to in 
                        subparagraph (A). Such standards shall be 
                        compatible with standards established under 
                        part C of title XI.
                            ``(ii) Application of advisory task 
                        force.--The advisory task force established 
                        under subsection (d)(3)(B)(ii) shall provide 
                        recommendations to the Administrator under such 
                        subsection regarding the standards developed 
                        under clause (i).
            ``(3) Requirements on development and application of 
        formularies.--If a PDP sponsor of a prescription drug plan uses 
        a formulary, the following requirements must be met:
                    ``(A) Pharmacy and therapeutic (p&t) committee.--
                The sponsor must establish a pharmacy and therapeutic 
                committee that develops and reviews the formulary. Such 
                committee shall include at least one practicing 
                physician and at least one practicing pharmacist both 
                with expertise in the care of elderly or disabled 
                persons and a majority of its members shall consist of 
                individuals who are a practicing physician or a 
                practicing pharmacist (or both).
                    ``(B) Formulary development.--In developing and 
                reviewing the formulary, the committee shall base 
                clinical decisions on the strength of scientific 
                evidence and standards of practice, including assessing 
                peer-reviewed medical literature, such as randomized 
                clinical trials, pharmacoeconomic studies, outcomes 
                research data, and such other information as the 
                committee determines to be appropriate.
                    ``(C) Inclusion of drugs in all therapeutic 
                categories.--The formulary must include drugs within 
                each therapeutic category and class of covered 
                outpatient drugs (although not necessarily for all 
                drugs within such categories and classes).
                    ``(D) Provider education.--The committee shall 
                establish policies and procedures to educate and inform 
                health care providers concerning the formulary.
                    ``(E) Notice before removing drugs from 
                formulary.--Any removal of a drug from a formulary 
                shall take effect only after appropriate notice is made 
                available to beneficiaries and physicians.
                    ``(F) Grievances and appeals relating to 
                application of formularies.--For provisions relating to 
                grievances and appeals of coverage, see subsections (e) 
                and (f).
    ``(d) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
            ``(1) In general.--The PDP sponsor shall have in place with 
        respect to covered outpatient drugs--
                    ``(A) an effective cost and drug utilization 
                management program, including medically appropriate 
                incentives to use generic drugs and therapeutic 
                interchange, when appropriate;
                    ``(B) quality assurance measures and systems to 
                reduce medical errors and adverse drug interactions, 
                including a medication therapy management program 
                described in paragraph (2) and for years beginning with 
                2006, an electronic prescription program described in 
                paragraph (3); and
                    ``(C) a program to control fraud, abuse, and waste.
        Nothing in this section shall be construed as impairing a PDP 
        sponsor from applying cost management tools (including 
        differential payments) under all methods of operation.
            ``(2) Medication therapy management program.--
                    ``(A) In general.--A medication therapy management 
                program described in this paragraph is a program of 
                drug therapy management and medication administration 
                that is designed to assure, with respect to 
                beneficiaries with chronic diseases (such as diabetes, 
                asthma, hypertension, and congestive heart failure) or 
                multiple prescriptions, that covered outpatient drugs 
                under the prescription drug plan are appropriately used 
                to achieve therapeutic goals and reduce the risk of 
                adverse events, including adverse drug interactions.
                    ``(B) Elements.--Such program may include--
                            ``(i) enhanced beneficiary understanding of 
                        such appropriate use through beneficiary 
                        education, counseling, and other appropriate 
                        means;
                            ``(ii) increased beneficiary adherence with 
                        prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other appropriate means; and
                            ``(iii) detection of patterns of overuse 
                        and underuse of prescription drugs.
                    ``(C) Development of program in cooperation with 
                licensed pharmacists.--The program shall be developed 
                in cooperation with licensed and practicing pharmacists 
                and physicians.
                    ``(D) Considerations in pharmacy fees.--The PDP 
                sponsor of a prescription drug program shall take into 
                account, in establishing fees for pharmacists and 
                others providing services under the medication therapy 
                management program, the resources and time used in 
                implementing the program.
            ``(3) Electronic prescription program.--
                    ``(A) In general.--An electronic prescription drug 
                program described in this paragraph is a program that 
                includes at least the following components, consistent 
                with national standards established under subparagraph 
                (B):
                            ``(i) Electronic transmittal of 
                        prescriptions.--Prescriptions are only received 
                        electronically, except in emergency cases and 
                        other exceptional circumstances recognized by 
                        the Administrator.
                            ``(ii) Provision of information to 
                        prescribing health care professional.--The 
                        program provides, upon transmittal of a 
                        prescription by a prescribing health care 
                        professional, for transmittal by the pharmacist 
                        to the professional of information that 
                        includes--
                                    ``(I) information (to the extent 
                                available and feasible) on the drugs 
                                being prescribed for that patient and 
                                other information relating to the 
                                medical history or condition of the 
                                patient that may be relevant to the 
                                appropriate prescription for that 
                                patient;
                                    ``(II) cost-effective alternatives 
                                (if any) for the use of the drug 
                                prescribed; and
                                    ``(III) information on the drugs 
                                included in the applicable formulary.
                        To the extent feasible, such program shall 
                        permit the prescribing health care professional 
                        to provide (and be provided) related 
                        information on an interactive, real-time basis.
                    ``(B) Standards.--
                            ``(i) Development.--The Administrator shall 
                        provide for the development of national 
                        standards relating to the electronic 
                        prescription drug program described in 
                        subparagraph (A). Such standards shall be 
                        compatible with standards established under 
                        part C of title XI.
                            ``(ii) Advisory task force.--In developing 
                        such standards and the standards described in 
                        subsection (c)(2)(B)(i) the Administrator shall 
                        establish a task force that includes 
                        representatives of physicians, hospitals, 
                        pharmacists, and technology experts and 
                        representatives of the Departments of Veterans 
                        Affairs and Defense and other appropriate 
                        Federal agencies to provide recommendations to 
                        the Administrator on such standards, including 
                        recommendations relating to the following:
                                    ``(I) The range of available 
                                computerized prescribing software and 
                                hardware and their costs to develop and 
                                implement.
                                    ``(II) The extent to which such 
                                systems reduce medication errors and 
                                can be readily implemented by 
                                physicians and hospitals.
                                    ``(III) Efforts to develop a common 
                                software platform for computerized 
                                prescribing.
                                    ``(IV) The cost of implementing 
                                such systems in the range of hospital 
                                and physician office settings, 
                                including hardware, software, and 
                                training costs.
                                    ``(V) Implementation issues as they 
                                relate to part C of title XI, and 
                                current Federal and State prescribing 
                                laws and regulations and their impact 
                                on implementation of computerized 
                                prescribing.
                            ``(iii) Deadlines.--
                                    ``(I) The Administrator shall 
                                constitute the task force under clause 
                                (ii) by not later than April 1, 2003.
                                    ``(II) Such task force shall submit 
                                recommendations to Administrator by not 
                                later than January 1, 2004.
                                    ``(III) The Administrator shall 
                                develop and promulgate the national 
                                standards referred to in clause (ii) by 
                                not later than January 1, 2005.
                    ``(C) Reference to availability of grant funds.--
                Grant funds are authorized under section 399O of the 
                Public Health Service Act to provide assistance to 
                health care providers in implementing electronic 
                prescription drug programs.
            ``(4) Treatment of accreditation.--Section 1852(e)(4) 
        (relating to treatment of accreditation) shall apply to 
        prescription drug plans under this part with respect to the 
        following requirements, in the same manner as they apply to 
        Medicare+Choice plans under part C with respect to the 
        requirements described in a clause of section 1852(e)(4)(B):
                    ``(A) Paragraph (1) (including quality assurance), 
                including medication therapy management program under 
                paragraph (2).
                    ``(B) Subsection (c)(1) (relating to access to 
                covered benefits).
                    ``(C) Subsection (g) (relating to confidentiality 
                and accuracy of enrollee records).
            ``(5) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--Each PDP sponsor shall provide that each 
        pharmacy or other dispenser that arranges for the dispensing of 
        a covered outpatient drug shall inform the beneficiary at the 
        time of purchase of the drug of any differential between the 
        price of the prescribed drug to the enrollee and the price of 
        the lowest cost generic drug covered under the plan that is 
        therapeutically equivalent and bioequivalent.
    ``(e) Grievance Mechanism, Coverage Determinations, and 
Reconsiderations.--
            ``(1) In general.--Each PDP sponsor shall provide 
        meaningful procedures for hearing and resolving grievances 
        between the organization (including any entity or individual 
        through which the sponsor provides covered benefits) and 
        enrollees with prescription drug plans of the sponsor under 
        this part in accordance with section 1852(f).
            ``(2) Application of coverage determination and 
        reconsideration provisions.--A PDP sponsor shall meet the 
        requirements of paragraphs (1) through (3) of section 1852(g) 
        with respect to covered benefits under the prescription drug 
        plan it offers under this part in the same manner as such 
        requirements apply to a Medicare+Choice organization with 
        respect to benefits it offers under a Medicare+Choice plan 
        under part C.
            ``(3) Request for review of tiered formulary 
        determinations.--In the case of a prescription drug plan 
        offered by a PDP sponsor that provides for tiered cost-sharing 
        for drugs included within a formulary and provides lower cost-
        sharing for preferred drugs included within the formulary, an 
        individual who is enrolled in the plan may request coverage of 
        a nonpreferred drug under the terms applicable for preferred 
        drugs if the prescribing physician determines that the 
        preferred drug for treatment of the same condition is not as 
        effective for the individual or has adverse effects for the 
        individual.
    ``(f) Appeals.--
            ``(1) In general.--Subject to paragraph (2), a PDP sponsor 
        shall meet the requirements of paragraphs (4) and (5) of 
        section 1852(g) with respect to drugs not included on any 
        formulary in the same manner as such requirements apply to a 
        Medicare+Choice organization with respect to benefits it offers 
        under a Medicare+Choice plan under part C.
            ``(2) Formulary determinations.--An individual who is 
        enrolled in a prescription drug plan offered by a PDP sponsor 
        may appeal to obtain coverage for a covered outpatient drug 
        that is not on a formulary of the sponsor if the prescribing 
        physician determines that the formulary drug for treatment of 
        the same condition is not as effective for the individual or 
        has adverse effects for the individual.
    ``(g) Confidentiality and Accuracy of Enrollee Records.--A PDP 
sponsor shall meet the requirements of section 1852(h) with respect to 
enrollees under this part in the same manner as such requirements apply 
to a Medicare+Choice organization with respect to enrollees under part 
C.

``SEC. 1860D. REQUIREMENTS FOR PRESCRIPTION DRUG PLAN (PDP) SPONSORS; 
              CONTRACTS; ESTABLISHMENT OF STANDARDS.

    ``(a) General Requirements.--Each PDP sponsor of a prescription 
drug plan shall meet the following requirements:
            ``(1) Licensure.--Subject to subsection (c), the sponsor is 
        organized and licensed under State law as a risk-bearing entity 
        eligible to offer health insurance or health benefits coverage 
        in each State in which it offers a prescription drug plan.
            ``(2) Assumption of financial risk for unsubsidized 
        coverage.--
                    ``(A) In general.--Subject to subparagraph (B) and 
                section 1860E(d)(2), the entity assumes full financial 
                risk on a prospective basis for qualified prescription 
                drug coverage that it offers under a prescription drug 
                plan and that is not covered under section 1860H.
                    ``(B) Reinsurance permitted.--The entity may obtain 
                insurance or make other arrangements for the cost of 
                coverage provided to any enrolled member under this 
                part.
            ``(3) Solvency for unlicensed sponsors.--In the case of a 
        sponsor that is not described in paragraph (1), the sponsor 
        shall meet solvency standards established by the Administrator 
        under subsection (d).
    ``(b) Contract Requirements.--
            ``(1) In general.--The Administrator shall not permit the 
        election under section 1860A of a prescription drug plan 
        offered by a PDP sponsor under this part, and the sponsor shall 
        not be eligible for payments under section 1860G or 1860H, 
        unless the Administrator has entered into a contract under this 
        subsection with the sponsor with respect to the offering of 
        such plan. Such a contract with a sponsor may cover more than 
        one prescription drug plan. Such contract shall provide that 
        the sponsor agrees to comply with the applicable requirements 
        and standards of this part and the terms and conditions of 
        payment as provided for in this part.
            ``(2) Negotiation regarding terms and conditions.--The 
        Administrator shall have the same authority to negotiate the 
        terms and conditions of prescription drug plans under this part 
        as the Director of the Office of Personnel Management has with 
        respect to health benefits plans under chapter 89 of title 5, 
        United States Code. In negotiating the terms and conditions 
        regarding premiums for which information is submitted under 
        section 1860F(a)(2), the Administrator shall take into account 
        the subsidy payments under section 1860H and the adjusted 
        community rate (as defined in section 1854(f)(3)) for the 
        benefits covered.
            ``(3) Incorporation of certain medicare+choice contract 
        requirements.--The following provisions of section 1857 shall 
        apply, subject to subsection (c)(5), to contracts under this 
        section in the same manner as they apply to contracts under 
        section 1857(a):
                    ``(A) Minimum enrollment.--Paragraphs (1) and (3) 
                of section 1857(b).
                    ``(B) Contract period and effectiveness.--
                Paragraphs (1) through (3) and (5) of section 1857(c).
                    ``(C) Protections against fraud and beneficiary 
                protections.--Section 1857(d).
                    ``(D) Additional contract terms.--Section 1857(e); 
                except that in applying section 1857(e)(2) under this 
                part--
                            ``(i) such section shall be applied 
                        separately to costs relating to this part (from 
                        costs under part C);
                            ``(ii) in no case shall the amount of the 
                        fee established under this subparagraph for a 
                        plan exceed 20 percent of the maximum amount of 
                        the fee that may be established under 
                        subparagraph (B) of such section; and
                            ``(iii) no fees shall be applied under this 
                        subparagraph with respect to Medicare+Choice 
                        plans.
                    ``(E) Intermediate sanctions.--Section 1857(g).
                    ``(F) Procedures for termination.--Section 1857(h).
            ``(4) Rules of application for intermediate sanctions.--In 
        applying paragraph (3)(E)--
                    ``(A) the reference in section 1857(g)(1)(B) to 
                section 1854 is deemed a reference to this part; and
                    ``(B) the reference in section 1857(g)(1)(F) to 
                section 1852(k)(2)(A)(ii) shall not be applied.
    ``(c) Waiver of Certain Requirements to Expand Choice.--
            ``(1) In general.--In the case of an entity that seeks to 
        offer a prescription drug plan in a State, the Administrator 
        shall waive the requirement of subsection (a)(1) that the 
        entity be licensed in that State if the Administrator 
        determines, based on the application and other evidence 
        presented to the Administrator, that any of the grounds for 
        approval of the application described in paragraph (2) has been 
        met.
            ``(2) Grounds for approval.--The grounds for approval under 
        this paragraph are the grounds for approval described in 
        subparagraph (B), (C), and (D) of section 1855(a)(2), and also 
        include the application by a State of any grounds other than 
        those required under Federal law.
            ``(3) Application of waiver procedures.--With respect to an 
        application for a waiver (or a waiver granted) under this 
        subsection, the provisions of subparagraphs (E), (F), and (G) 
        of section 1855(a)(2) shall apply.
            ``(4) Licensure does not substitute for or constitute 
        certification.--The fact that an entity is licensed in 
        accordance with subsection (a)(1) does not deem the entity to 
        meet other requirements imposed under this part for a PDP 
        sponsor.
            ``(5) References to certain provisions.--For purposes of 
        this subsection, in applying provisions of section 1855(a)(2) 
        under this subsection to prescription drug plans and PDP 
        sponsors--
                    ``(A) any reference to a waiver application under 
                section 1855 shall be treated as a reference to a 
                waiver application under paragraph (1); and
                    ``(B) any reference to solvency standards shall be 
                treated as a reference to solvency standards 
                established under subsection (d).
    ``(d) Solvency Standards for Non-Licensed Sponsors.--
            ``(1) Establishment.--The Administrator shall establish, by 
        not later than October 1, 2003, financial solvency and capital 
        adequacy standards that an entity that does not meet the 
        requirements of subsection (a)(1) must meet to qualify as a PDP 
        sponsor under this part.
            ``(2) Compliance with standards.--Each PDP sponsor that is 
        not licensed by a State under subsection (a)(1) and for which a 
        waiver application has been approved under subsection (c) shall 
        meet solvency and capital adequacy standards established under 
        paragraph (1). The Administrator shall establish certification 
        procedures for such PDP sponsors with respect to such solvency 
        standards in the manner described in section 1855(c)(2).
    ``(e) Other Standards.--The Administrator shall establish by 
regulation other standards (not described in subsection (d)) for PDP 
sponsors and plans consistent with, and to carry out, this part. The 
Administrator shall publish such regulations by October 1, 2003.
    ``(f) Relation to State Laws.--
            ``(1) In general.--The standards established under this 
        part shall supersede any State law or regulation (other than 
        State licensing laws or State laws relating to plan solvency, 
        except as provided in subsection (d)) with respect to 
        prescription drug plans which are offered by PDP sponsors under 
        this part.
            ``(2) Prohibition of state imposition of premium taxes.--No 
        State may impose a premium tax or similar tax with respect to 
        premiums paid to PDP sponsors for prescription drug plans under 
        this part, or with respect to any payments made to such a 
        sponsor by the Administrator under this part.

``SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT QUALIFIED 
              PRESCRIPTION DRUG COVERAGE.

    ``(a) In General.--The Administrator shall establish a process for 
the selection of the prescription drug plan or Medicare+Choice plan 
which offer qualified prescription drug coverage through which eligible 
individuals elect qualified prescription drug coverage under this part.
    ``(b) Elements.--Such process shall include the following:
            ``(1) Annual, coordinated election periods, in which such 
        individuals can change the qualifying plans through which they 
        obtain coverage, in accordance with section 1860A(b)(2).
            ``(2) Active dissemination of information to promote an 
        informed selection among qualifying plans based upon price, 
        quality, and other features, in the manner described in (and in 
        coordination with) section 1851(d), including the provision of 
        annual comparative information, maintenance of a toll-free 
        hotline, and the use of non-Federal entities.
            ``(3) Coordination of elections through filing with a 
        Medicare+Choice organization or a PDP sponsor, in the manner 
        described in (and in coordination with) section 1851(c)(2).
    ``(c) Medicare+Choice Enrollee In Plan Offering Prescription Drug 
Coverage May Only Obtain Benefits Through the Plan.--An individual who 
is enrolled under a Medicare+Choice plan that offers qualified 
prescription drug coverage may only elect to receive qualified 
prescription drug coverage under this part through such plan.
    ``(d) Assuring Access to a Choice of Qualified Prescription Drug 
Coverage.--
            ``(1) Choice of at least two plans in each area.--
                    ``(A) In general.--The Administrator shall assure 
                that each individual who is entitled to benefits under 
                part A or enrolled under part B and who is residing in 
                an area in the United States has available, consistent 
                with subparagraph (B), a choice of enrollment in at 
                least two qualifying plans (as defined in paragraph 
                (5)) in the area in which the individual resides, at 
                least one of which is a prescription drug plan.
                    ``(B) Requirement for different plan sponsors.--The 
                requirement in subparagraph (A) is not satisfied with 
                respect to an area if only one PDP sponsor or 
                Medicare+Choice organization offers all the qualifying 
                plans in the area.
            ``(2) Guaranteeing access to coverage.--In order to assure 
        access under paragraph (1) and consistent with paragraph (3), 
        the Administrator may provide financial incentives (including 
        partial underwriting of risk) for a PDP sponsor to expand the 
        service area under an existing prescription drug plan to 
        adjoining or additional areas or to establish such a plan 
        (including offering such a plan on a regional or nationwide 
        basis), but only so long as (and to the extent) necessary to 
        assure the access guaranteed under paragraph (1).
            ``(3) Limitation on authority.--In exercising authority 
        under this subsection, the Administrator--
                    ``(A) shall not provide for the full underwriting 
                of financial risk for any PDP sponsor;
                    ``(B) shall not provide for any underwriting of 
                financial risk for a public PDP sponsor with respect to 
                the offering of a nationwide prescription drug plan; 
                and
                    ``(C) shall seek to maximize the assumption of 
                financial risk by PDP sponsors or Medicare+Choice 
                organizations.
            ``(4) Reports.--The Administrator shall, in each annual 
        report to Congress under section 1808(f), include information 
        on the exercise of authority under this subsection. The 
        Administrator also shall include such recommendations as may be 
        appropriate to minimize the exercise of such authority, 
        including minimizing the assumption of financial risk.
            ``(5) Qualifying plan defined.--For purposes of this 
        subsection, the term `qualifying plan' means a prescription 
        drug plan or a Medicare+Choice plan that includes qualified 
        prescription drug coverage.

``SEC. 1860F. SUBMISSION OF BIDS AND PREMIUMS.

    ``(a) Submission of Bids, Premiums, and Related Information.--
            ``(1) In general.--Each PDP sponsor shall submit to the 
        Administrator the information described in paragraph (2) in the 
        same manner as information is submitted by a Medicare+Choice 
        organization under section 1854(a)(1).
            ``(2) Information submitted.--The information described in 
        this paragraph is the following:
                    ``(A) Coverage provided.--Information on the 
                qualified prescription drug coverage to be provided.
                    ``(B) Actuarial value.--Information on the 
                actuarial value of the coverage.
                    ``(C) Bid and premium.--Information on the bid and 
                the premium for the coverage, including an actuarial 
                certification of--
                            ``(i) the actuarial basis for such bid and 
                        premium;
                            ``(ii) the portion of such bid and premium 
                        attributable to benefits in excess of standard 
                        coverage; and
                            ``(iii) the reduction in such bid and 
                        premium resulting from the subsidy payments 
                        provided under section 1860H.
                    ``(D) Additional information.--Such other 
                information as the Administrator may require to carry 
                out this part.
            ``(3) Review of information and approval of premiums.--The 
        Administrator shall review the information filed under 
        paragraph (2) for the purpose of conducting negotiations under 
        section 1860D(b)(2). The Administrator, using the information 
        provided (including the actuarial certification under paragraph 
        (2)(C)) shall approve the premium submitted under this 
        subsection only if the premium accurately reflects both (A) the 
        actuarial value of the benefits provided, and (B) the 67 
        percent subsidy provided under section 1860H for the standard 
        benefit. The Administrator shall apply actuarial principles to 
        approval of a premium under this part in a manner similar to 
        the manner in which those principles are applied in 
        establishing the monthly part B premium under section 1839.
    ``(b) Uniform Bid and Premium.--
            ``(1) In general.--The bid and premium for a prescription 
        drug plan under this section may not vary among individuals 
        enrolled in the plan in the same service area.
            ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed as preventing the imposition of a late enrollment 
        penalty under section 1860A(c)(2)(B).
    ``(c) Collection.--
            ``(1) Beneficiary's option of payment through withholding 
        from social security payment or use of electronic funds 
        transfer mechanism.--In accordance with regulations, a PDP 
        sponsor shall permit each enrollee, at the enrollee's option, 
        to make payment of premiums under this part through withholding 
        from benefit payments in the manner provided under section 1840 
        with respect to monthly premiums under section 1839 or through 
        an electronic funds transfer mechanism (such as automatic 
        charges of an account at a financial institution or a credit or 
        debit card account) or otherwise. All such amounts shall be 
        credited to the Medicare Prescription Drug Trust Fund.
            ``(2) Offsetting.--Reductions in premiums for coverage 
        under parts A and B as a result of a selection of a 
        Medicare+Choice plan may be used to reduce the premium 
        otherwise imposed under paragraph (1).
            ``(3) Payment of plans.--PDP plans shall receive payment 
        based on bid amounts in the same manner as Medicare+Choice 
        organizations receive payment based on bid amounts under 
        section 1853(a)(1)(A)(ii) except that such payment shall be 
        made from the Medicare Prescription Drug Trust Fund.
    ``(d) Acceptance of Benchmark Amount as Full Premium for Subsidized 
Low-Income Individuals if No Standard (or Equivalent) Coverage in an 
Area.--
            ``(1) In general.--If there is no standard prescription 
        drug coverage (as defined in paragraph (2)) offered in an area, 
        in the case of an individual who is eligible for a premium 
        subsidy under section 1860G and resides in the area, the PDP 
        sponsor of any prescription drug plan offered in the area (and 
        any Medicare+Choice organization that offers qualified 
        prescription drug coverage in the area) shall accept the 
        benchmark bid amount (under section 1860G(b)(2)) as payment in 
        full for the premium charge for qualified prescription drug 
        coverage.
            ``(2) Standard prescription drug coverage defined.--For 
        purposes of this subsection, the term `standard prescription 
        drug coverage' means qualified prescription drug coverage that 
        is standard coverage or that has an actuarial value equivalent 
        to the actuarial value for standard coverage.

``SEC. 1860G. PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME 
              INDIVIDUALS.

    ``(a) Income-Related Subsidies for Individuals With Income Below 
175 Percent of Federal Poverty Level.--
            ``(1) Full premium subsidy and reduction of cost-sharing 
        for individuals with income below 150 percent of federal 
        poverty level.--In the case of a subsidy eligible individual 
        (as defined in paragraph (4)) who is determined to have income 
        that does not exceed 150 percent of the Federal poverty level, 
        the individual is entitled under this section--
                    ``(A) to an income-related premium subsidy equal to 
                100 percent of the amount described in subsection 
                (b)(1); and
                    ``(B) subject to subsection (c), to the 
                substitution for the beneficiary cost-sharing described 
                in paragraphs (1) and (2) of section 1860B(b) (up to 
                the initial coverage limit specified in paragraph (3) 
                of such section) of amounts that do not exceed $2 for a 
                multiple source or generic drug (as described in 
                section 1927(k)(7)(A)) and $5 for a non-preferred drug.
            ``(2) Sliding scale premium subsidy and reduction of cost-
        sharing for individuals with income above 150, but below 175 
        percent, of federal poverty level.--In the case of a subsidy 
        eligible individual who is determined to have income that 
        exceeds 150 percent, but does not exceed 175 percent, of the 
        Federal poverty level, the individual is entitled under this 
        section to--
                    ``(A) an income-related premium subsidy determined 
                on a linear sliding scale ranging from 100 percent of 
                the amount described in subsection (b)(1) for 
                individuals with incomes at 150 percent of such level 
                to 0 percent of such amount for individuals with 
                incomes at 175 percent of such level; and
                    ``(B) subject to subsection (c), to the 
                substitution for the beneficiary cost-sharing described 
                in paragraphs (1) and (2) of section 1860B(b) (up to 
                the initial coverage limit specified in paragraph (3) 
                of such section) of amounts that do not exceed $2 for a 
                multiple source or generic drug (as described in 
                section 1927(k)(7)(A)) and $5 for a non-preferred drug.
            ``(3) Construction.--Nothing in this section shall be 
        construed as preventing a PDP sponsor from reducing to 0 the 
        cost-sharing otherwise applicable to generic drugs.
            ``(4) Determination of eligibility.--
                    ``(A) Subsidy eligible individual defined.--For 
                purposes of this section, subject to subparagraph (D), 
                the term `subsidy eligible individual' means an 
                individual who--
                            ``(i) is eligible to elect, and has 
                        elected, to obtain qualified prescription drug 
                        coverage under this part;
                            ``(ii) has income below 175 percent of the 
                        Federal poverty line; and
                            ``(iii) meets the resources requirement 
                        described in section 1905(p)(1)(C).
                    ``(B) Determinations.--The determination of whether 
                an individual residing in a State is a subsidy eligible 
                individual and the amount of such individual's income 
                shall be determined under the State medicaid plan for 
                the State under section 1935(a) or by the Social 
                Security Administration. In the case of a State that 
                does not operate such a medicaid plan (either under 
                title XIX or under a statewide waiver granted under 
                section 1115), such determination shall be made under 
                arrangements made by the Administrator. There are 
                authorized to be appropriated to the Social Security 
                Administration such sums as may be necessary for the 
                determination of eligibility under this subparagraph.
                    ``(C) Income determinations.--For purposes of 
                applying this section--
                            ``(i) income shall be determined in the 
                        manner described in section 1905(p)(1)(B); and
                            ``(ii) the term `Federal poverty line' 
                        means the official poverty line (as defined by 
                        the Office of Management and Budget, and 
                        revised annually in accordance with section 
                        673(2) of the Omnibus Budget Reconciliation Act 
                        of 1981) applicable to a family of the size 
                        involved.
                    ``(D) Treatment of territorial residents.--In the 
                case of an individual who is not a resident of the 50 
                States or the District of Columbia, the individual is 
                not eligible to be a subsidy eligible individual but 
                may be eligible for financial assistance with 
                prescription drug expenses under section 1935(e).
                    ``(E) Treatment of conforming medigap policies.--
                For purposes of this section, the term `qualified 
                prescription drug coverage' includes a medicare 
                supplemental policy described in section 1860H(b)(4).
            ``(5) Indexing dollar amounts.--
                    ``(A) For 2006.--The dollar amounts applied under 
                paragraphs (1)(B) and (2)(B) for 2006 shall be the 
                dollar amounts specified in such paragraph increased by 
                the annual percentage increase described in section 
                1860B(b)(5) for 2006.
                    ``(B) For subsequent years.--The dollar amounts 
                applied under paragraphs (1)(B) and (2)(B) for a year 
                after 2006 shall be the amounts (under this paragraph) 
                applied under paragraph (1)(B) or (2)(B) for the 
                preceding year increased by the annual percentage 
                increase described in section 1860B(b)(5) (relating to 
                growth in medicare prescription drug costs per 
                beneficiary) for the year involved.
    ``(b) Premium Subsidy Amount.--
            ``(1) In general.--The premium subsidy amount described in 
        this subsection for an individual residing in an area is the 
        benchmark bid amount (as defined in paragraph (2)) for 
        qualified prescription drug coverage offered by the 
        prescription drug plan or the Medicare+Choice plan in which the 
        individual is enrolled.
            ``(2) Benchmark bid amount defined.--For purposes of this 
        subsection, the term `benchmark bid amount' means, with respect 
        to qualified prescription drug coverage offered under--
                    ``(A) a prescription drug plan that--
                            ``(i) provides standard coverage (or 
                        alternative prescription drug coverage the 
                        actuarial value is equivalent to that of 
                        standard coverage), the bid amount for 
                        enrollment under the plan under this part 
                        (determined without regard to any subsidy under 
                        this section or any late enrollment penalty 
                        under section 1860A(c)(2)(B)); or
                            ``(ii) provides alternative prescription 
                        drug coverage the actuarial value of which is 
                        greater than that of standard coverage, the bid 
                        amount described in clause (i) multiplied by 
                        the ratio of (I) the actuarial value of 
                        standard coverage, to (II) the actuarial value 
                        of the alternative coverage; or
                    ``(B) a Medicare+Choice plan, the portion of the 
                bid amount that is attributable to statutory drug 
                benefits (described in section 1853(a)(1)(A)(ii)(II)).
    ``(c) Rules in Applying Cost-Sharing Subsidies.--
            ``(1) In general.--In applying subsections (a)(1)(B) and 
        (a)(2)(B), nothing in this part shall be construed as 
        preventing a plan or provider from waiving or reducing the 
        amount of cost-sharing otherwise applicable.
            ``(2) Limitation on charges.--In the case of an individual 
        receiving cost-sharing subsidies under subsection (a)(1)(B) or 
        (a)(2)(B), the PDP sponsor may not charge more than $5 per 
        prescription.
            ``(3) Application of indexing rules.--The provisions of 
        subsection (a)(4) shall apply to the dollar amount specified in 
        paragraph (2) in the same manner as they apply to the dollar 
        amounts specified in subsections (a)(1)(B) and (a)(2)(B).
    ``(d) Administration of Subsidy Program.--The Administrator shall 
provide a process whereby, in the case of an individual who is 
determined to be a subsidy eligible individual and who is enrolled in 
prescription drug plan or is enrolled in a Medicare+Choice plan under 
which qualified prescription drug coverage is provided--
            ``(1) the Administrator provides for a notification of the 
        PDP sponsor or Medicare+Choice organization involved that the 
        individual is eligible for a subsidy and the amount of the 
        subsidy under subsection (a);
            ``(2) the sponsor or organization involved reduces the 
        premiums or cost-sharing otherwise imposed by the amount of the 
        applicable subsidy and submits to the Administrator information 
        on the amount of such reduction; and
            ``(3) the Administrator periodically and on a timely basis 
        reimburses the sponsor or organization for the amount of such 
        reductions.
The reimbursement under paragraph (3) with respect to cost-sharing 
subsidies may be computed on a capitated basis, taking into account the 
actuarial value of the subsidies and with appropriate adjustments to 
reflect differences in the risks actually involved.
    ``(e) Relation to Medicaid Program.--
            ``(1) In general.--For provisions providing for eligibility 
        determinations, and additional financing, under the medicaid 
        program, see section 1935.
            ``(2) Medicaid providing wrap around benefits.--The 
        coverage provided under this part is primary payor to benefits 
        for prescribed drugs provided under the medicaid program under 
        title XIX.
            ``(3) Coordination.--The Administrator shall develop and 
        implement a plan for the coordination of prescription drug 
        benefits under this part with the benefits provided under the 
        medicaid program under title XIX, with particular attention to 
        insuring coordination of payments and prevention of fraud and 
        abuse. In developing and implementing such plan, the 
        Administrator shall involve the Secretary, the States, the data 
        processing industry, pharmacists, and pharmaceutical 
        manufacturers, and other experts.

``SEC. 1860H. SUBSIDIES FOR ALL MEDICARE BENEFICIARIES FOR QUALIFIED 
              PRESCRIPTION DRUG COVERAGE.

    ``(a) Subsidy Payment.--In order to reduce premium levels 
applicable to qualified prescription drug coverage for all medicare 
beneficiaries consistent with an overall subsidy level of 67 percent, 
to reduce adverse selection among prescription drug plans and 
Medicare+Choice plans that provide qualified prescription drug 
coverage, and to promote the participation of PDP sponsors under this 
part, the Administrator shall provide in accordance with this section 
for payment to a qualifying entity (as defined in subsection (b)) of 
the following subsidies:
            ``(1) Direct subsidy.--In the case of an individual 
        enrolled in a prescription drug plan, Medicare+Choice plan that 
        provides qualified prescription drug coverage, or qualified 
        retiree prescription drug plan, a direct subsidy equal to 37 
        percent of the total payments made by a qualifying entity for 
        standard coverage under the respective plan.
            ``(2) Subsidy through reinsurance.--The reinsurance payment 
        amount (as defined in subsection (c)), which in the aggregate 
        is 30 percent of such total payments, for excess costs incurred 
        in providing qualified prescription drug coverage--
                    ``(A) for individuals enrolled with a prescription 
                drug plan under this part;
                    ``(B) for individuals enrolled with a 
                Medicare+Choice plan that provides qualified 
                prescription drug coverage; and
                    ``(C) for individuals who are enrolled in a 
                qualified retiree prescription drug plan.
This section constitutes budget authority in advance of appropriations 
Acts and represents the obligation of the Administrator to provide for 
the payment of amounts provided under this section.
    ``(b) Qualifying Entity Defined.--For purposes of this section, the 
term `qualifying entity' means any of the following that has entered 
into an agreement with the Administrator to provide the Administrator 
with such information as may be required to carry out this section:
            ``(1) A PDP sponsor offering a prescription drug plan under 
        this part.
            ``(2) A Medicare+Choice organization that provides 
        qualified prescription drug coverage under a Medicare+Choice 
        plan under part C.
            ``(3) The sponsor of a qualified retiree prescription drug 
        plan (as defined in subsection (f)).
    ``(c) Reinsurance Payment Amount.--
            ``(1) In general.--Subject to subsection (d)(1)(B) and 
        paragraph (4), the reinsurance payment amount under this 
        subsection for a qualifying covered individual (as defined in 
        subsection (g)(1)) for a coverage year (as defined in 
        subsection (g)(2)) is equal to the sum of the following:
                    ``(A) For the portion of the individual's gross 
                covered prescription drug costs (as defined in 
                paragraph (3)) for the year that exceeds the initial 
                copayment threshold specified in section 
                1860B(b)(2)(C), but does not exceed the initial 
                coverage limit specified in section 1860B(b)(3), an 
                amount equal to 30 percent of the allowable costs (as 
                defined in paragraph (2)) attributable to such gross 
                covered prescription drug costs.
                    ``(B) For the portion of the individual's gross 
                covered prescription drug costs for the year that 
                exceeds the annual out-of-pocket threshold specified in 
                1860B(b)(4)(B), an amount equal to 80 percent of the 
                allowable costs attributable to such gross covered 
                prescription drug costs.
            ``(2) Allowable costs.--For purposes of this section, the 
        term `allowable costs' means, with respect to gross covered 
        prescription drug costs under a plan described in subsection 
        (b) offered by a qualifying entity, the part of such costs that 
        are actually paid (net of average percentage rebates) under the 
        plan, but in no case more than the part of such costs that 
        would have been paid under the plan if the prescription drug 
        coverage under the plan were standard coverage.
            ``(3) Gross covered prescription drug costs.--For purposes 
        of this section, the term `gross covered prescription drug 
        costs' means, with respect to an enrollee with a qualifying 
        entity under a plan described in subsection (b) during a 
        coverage year, the costs incurred under the plan (including 
        costs attributable to administrative costs) for covered 
        prescription drugs dispensed during the year, including costs 
        relating to the deductible, whether paid by the enrollee or 
        under the plan, regardless of whether the coverage under the 
        plan exceeds standard coverage and regardless of when the 
        payment for such drugs is made.
            ``(4) Indexing dollar amounts.--
                    ``(A) Amounts for 2005.--The dollar amounts applied 
                under paragraph (1) for 2005 shall be the dollar 
                amounts specified in such paragraph.
                    ``(B) For 2006.--The dollar amounts applied under 
                paragraph (1) for 2006 shall be the dollar amounts 
                specified in such paragraph increased by the annual 
                percentage increase described in section 1860B(b)(5) 
                for 2006.
                    ``(C) For subsequent years.--The dollar amounts 
                applied under paragraph (1) for a year after 2006 shall 
                be the amounts (under this paragraph) applied under 
                paragraph (1) for the preceding year increased by the 
                annual percentage increase described in section 
                1860B(b)(5) (relating to growth in medicare 
                prescription drug costs per beneficiary) for the year 
                involved.
                    ``(D) Rounding.--Any amount, determined under the 
                preceding provisions of this paragraph for a year, 
                which is not a multiple of $10 shall be rounded to the 
                nearest multiple of $10.
    ``(d) Adjustment of Payments.--
            ``(1) Adjustment of reinsurance payments to assure 30 
        percent level of subsidy through reinsurance.--
                    ``(A) Estimation of payments.--The Administrator 
                shall estimate--
                            ``(i) the total payments to be made 
                        (without regard to this subsection) during a 
                        year under subsections (a)(2) and (c); and
                            ``(ii) the total payments to be made by 
                        qualifying entities for standard coverage under 
                        plans described in subsection (b) during the 
                        year.
                    ``(B) Adjustment.--The Administrator shall 
                proportionally adjust the payments made under 
                subsections (a)(2) and (c) for a coverage year in such 
                manner so that the total of the payments made under 
                such subsections for the year is equal to 30 percent of 
                the total payments described in subparagraph (A)(ii).
            ``(2) Risk adjustment for direct subsidies.--To the extent 
        the Administrator determines it appropriate to avoid risk 
        selection, the payments made for direct subsidies under 
        subsection (a)(1) are subject to adjustment based upon risk 
        factors specified by the Administrator. Any such risk 
        adjustment shall be designed in a manner as to not result in a 
        change in the aggregate payments made under such subsection.
    ``(e) Payment Methods.--
            ``(1) In general.--Payments under this section shall be 
        based on such a method as the Administrator determines. The 
        Administrator may establish a payment method by which interim 
        payments of amounts under this section are made during a year 
        based on the Administrator's best estimate of amounts that will 
        be payable after obtaining all of the information.
            ``(2) Source of payments.--Payments under this section 
        shall be made from the Medicare Prescription Drug Trust Fund.
    ``(f) Qualified Retiree Prescription Drug Plan Defined.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified retiree prescription drug plan' means employment-
        based retiree health coverage (as defined in paragraph (3)(A)) 
        if, with respect to an individual enrolled (or eligible to be 
        enrolled) under this part who is covered under the plan, the 
        following requirements are met:
                    ``(A) Assurance.--The sponsor of the plan shall 
                annually attest, and provide such assurances as the 
                Administrator may require, that the coverage meets or 
                exceeds the requirements for qualified prescription 
                drug coverage.
                    ``(B) Audits.--The sponsor (and the plan) shall 
                maintain, and afford the Administrator access to, such 
                records as the Administrator may require for purposes 
                of audits and other oversight activities necessary to 
                ensure the adequacy of prescription drug coverage, and 
                the accuracy of payments made.
                    ``(C) Provision of certification of prescription 
                drug coverage.--The sponsor of the plan shall provide 
                for issuance of certifications of the type described in 
                section 1860A(c)(2)(D).
            ``(2) Limitation on benefit eligibility.--No payment shall 
        be provided under this section with respect to an individual 
        who is enrolled under a qualified retiree prescription drug 
        plan unless the individual is--
                    ``(A) enrolled under this part;
                    ``(B) is covered under the plan; and
                    ``(C) is eligible to obtain qualified prescription 
                drug coverage under section 1860A but did not elect 
                such coverage under this part (either through a 
                prescription drug plan or through a Medicare+Choice 
                plan).
            ``(3) Definitions.--As used in this section:
                    ``(A) Employment-based retiree health coverage.--
                The term `employment-based retiree health coverage' 
                means health insurance or other coverage of health care 
                costs for individuals enrolled under this part (or for 
                such individuals and their spouses and dependents) 
                based on their status as former employees or labor 
                union members.
                    ``(B) Sponsor.--The term `sponsor' means a plan 
                sponsor, as defined in section 3(16)(B) of the Employee 
                Retirement Income Security Act of 1974.
    ``(g) General Definitions.--For purposes of this section:
            ``(1) Qualifying covered individual.--The term `qualifying 
        covered individual' means an individual who--
                    ``(A) is enrolled with a prescription drug plan 
                under this part;
                    ``(B) is enrolled with a Medicare+Choice plan that 
                provides qualified prescription drug coverage under 
                part C; or
                    ``(C) is enrolled for benefits under this title and 
                is covered under a qualified retiree prescription drug 
                plan.
            ``(2) Coverage year.--The term `coverage year' means a 
        calendar year in which covered outpatient drugs are dispensed 
        if a claim for payment is made under the plan for such drugs, 
        regardless of when the claim is paid.

``SEC. 1860I. MEDICARE PRESCRIPTION DRUG TRUST FUND.

    ``(a) In General.--There is created on the books of the Treasury of 
the United States a trust fund to be known as the `Medicare 
Prescription Drug Trust Fund' (in this section referred to as the 
`Trust Fund'). The Trust Fund shall consist of such gifts and bequests 
as may be made as provided in section 201(i)(1), and such amounts as 
may be deposited in, or appropriated to, such fund as provided in this 
part. Except as otherwise provided in this section, the provisions of 
subsections (b) through (i) of section 1841 shall apply to the Trust 
Fund in the same manner as they apply to the Federal Supplementary 
Medical Insurance Trust Fund under such section.
    ``(b) Payments From Trust Fund.--
            ``(1) In general.--The Managing Trustee shall pay from time 
        to time from the Trust Fund such amounts as the Administrator 
        certifies are necessary to make--
                    ``(A) payments under section 1860G (relating to 
                low-income subsidy payments);
                    ``(B) payments under section 1860H (relating to 
                subsidy payments); and
                    ``(C) payments with respect to administrative 
                expenses under this part in accordance with section 
                201(g).
            ``(2) Transfers to medicaid account for increased 
        administrative costs.--The Managing Trustee shall transfer from 
        time to time from the Trust Fund to the Grants to States for 
        Medicaid account amounts the Administrator certifies are 
        attributable to increases in payment resulting from the 
        application of a higher Federal matching percentage under 
        section 1935(b).
    ``(c) Deposits Into Trust Fund.--
            ``(1) Low-income transfer.--There is hereby transferred to 
        the Trust Fund, from amounts appropriated for Grants to States 
        for Medicaid, amounts equivalent to the aggregate amount of the 
        reductions in payments under section 1903(a)(1) attributable to 
        the application of section 1935(c).
            ``(2) Appropriations to cover government contributions.--
        There are authorized to be appropriated from time to time, out 
        of any moneys in the Treasury not otherwise appropriated, to 
        the Trust Fund, an amount equivalent to the amount of payments 
        made from the Trust Fund under subsection (b), reduced by the 
        amount transferred to the Trust Fund under paragraph (1).
    ``(d) Relation to Solvency Requirements.--Any provision of law that 
relates to the solvency of the Trust Fund under this part shall take 
into account the Trust Fund and amounts receivable by, or payable from, 
the Trust Fund.

``SEC. 1860J. DEFINITIONS; TREATMENT OF REFERENCES TO PROVISIONS IN 
              PART C.

    ``(a) Definitions.--For purposes of this part:
            ``(1) Covered outpatient drugs.--The term `covered 
        outpatient drugs' is defined in section 1860B(f).
            ``(2) Initial coverage limit.--The term `initial coverage 
        limit' means such limit as established under section 
        1860B(b)(3), or, in the case of coverage that is not standard 
        coverage, the comparable limit (if any) established under the 
        coverage.
            ``(3) Medicare prescription drug trust fund.--The term 
        `Medicare Prescription Drug Trust Fund' means the Trust Fund 
        created under section 1860I(a).
            ``(4) PDP sponsor.--The term `PDP sponsor' means an entity 
        that is certified under this part as meeting the requirements 
        and standards of this part for such a sponsor.
            ``(5) Prescription drug plan.--The term `prescription drug 
        plan' means health benefits coverage that--
                    ``(A) is offered under a policy, contract, or plan 
                by a PDP sponsor pursuant to, and in accordance with, a 
                contract between the Administrator and the sponsor 
                under section 1860D(b);
                    ``(B) provides qualified prescription drug 
                coverage; and
                    ``(C) meets the applicable requirements of the 
                section 1860C for a prescription drug plan.
            ``(6) Qualified prescription drug coverage.--The term 
        `qualified prescription drug coverage' is defined in section 
        1860B(a).
            ``(7) Standard coverage.--The term `standard coverage' is 
        defined in section 1860B(b).
    ``(b) Application of Medicare+Choice Provisions Under This Part.--
For purposes of applying provisions of part C under this part with 
respect to a prescription drug plan and a PDP sponsor, unless otherwise 
provided in this part such provisions shall be applied as if--
            ``(1) any reference to a Medicare+Choice plan included a 
        reference to a prescription drug plan;
            ``(2) any reference to a provider-sponsored organization 
        included a reference to a PDP sponsor;
            ``(3) any reference to a contract under section 1857 
        included a reference to a contract under section 1860D(b); and
            ``(4) any reference to part C included a reference to this 
        part.''.
    (b) Additional Conforming Changes.--
            (1) Conforming references to previous part d.--Any 
        reference in law (in effect before the date of the enactment of 
        this Act) to part D of title XVIII of the Social Security Act 
        is deemed a reference to part E of such title (as in effect 
        after such date).
            (2) Conforming amendment permitting waiver of cost-
        sharing.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is 
        amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (E);
                    (B) by striking the period at the end of 
                subparagraph (F) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(G) the waiver or reduction of any cost-sharing imposed 
        under part D of title XVIII.''.
            (3) Submission of legislative proposal.--Not later than 6 
        months after the date of the enactment of this Act, the 
        Secretary of Health and Human Services shall submit to the 
        appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this subtitle.
    (c) Study on Transitioning Part B Prescription Drug Coverage.--Not 
later than January 1, 2004, the Medicare Benefits Administrator shall 
submit a report to Congress that makes recommendations regarding 
methods for providing benefits under part D of title XVIII of the 
Social Security Act for outpatient prescription drugs for which 
benefits are provided under part B of such title.

SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG COVERAGE UNDER THE 
              MEDICARE+CHOICE PROGRAM.

    (a) In General.--Section 1851 (42 U.S.C. 1395w-21) is amended by 
adding at the end the following new subsection:
    ``(j) Availability of Prescription Drug Benefits.--
            ``(1) Offer of qualified prescription drug coverage.--
                    ``(A) In general.--A Medicare+Choice organization 
                may not offer prescription drug coverage (other than 
                that required under parts A and B) to an enrollee under 
                a Medicare+Choice plan unless such drug coverage is at 
                least qualified prescription drug coverage and unless 
                the requirements of this subsection with respect to 
                such coverage are met.
                    ``(B) Construction.--Nothing in this subsection 
                shall be construed as--
                            ``(i) requiring a Medicare+Choice plan to 
                        include coverage of qualified prescription drug 
                        coverage; or
                            ``(ii) permitting a Medicare+Choice 
                        organization from providing such coverage to an 
                        individual who has not elected such coverage 
                        under section 1860A(b).
                For purposes of this part, an individual who has not 
                elected qualified prescription drug coverage under 
                section 1860A(b) shall be treated as being ineligible 
                to enroll in a Medicare+Choice plan under this part 
                that offers such coverage.
            ``(2) Compliance with additional beneficiary protections.--
        With respect to the offering of qualified prescription drug 
        coverage by a Medicare+Choice organization under a 
        Medicare+Choice plan, the organization and plan shall meet the 
        requirements of section 1860C, including requirements relating 
        to information dissemination and grievance and appeals, in the 
        same manner as they apply to a PDP sponsor and a prescription 
        drug plan under part D and shall submit to the Administrator 
        the information described in section 1860F(a)(2). The 
        Administrator shall waive such requirements to the extent the 
        Administrator determines that such requirements duplicate 
        requirements otherwise applicable to the organization or plan 
        under this part.
            ``(3) Availability of premium and cost-sharing subsidies 
        for low-income enrollees and direct and reinsurance subsidy 
        payments for organizations.--For provisions--
                    ``(A) providing premium and cost-sharing subsidies 
                to low-income individuals receiving qualified 
                prescription drug coverage through a Medicare+Choice 
                plan, see section 1860G; and
                    ``(B) providing a Medicare+Choice organization with 
                direct and insurance subsidy payments for providing 
                qualified prescription drug coverage under this part, 
                see section 1860H.
            ``(4) Transition in initial enrollment period.--
        Notwithstanding any other provision of this part, the annual, 
        coordinated election period under subsection (e)(3)(B) for 2005 
        shall be the 6-month period beginning with November 2004.
            ``(5) Qualified prescription drug coverage; standard 
        coverage.--For purposes of this part, the terms `qualified 
        prescription drug coverage' and `standard coverage' have the 
        meanings given such terms in section 1860B.''.
    (b) Conforming Amendments.--Section 1851 (42 U.S.C. 1395w-21) is 
amended--
            (1) in subsection (a)(1)--
                    (A) by inserting ``(other than qualified 
                prescription drug benefits)'' after ``benefits'';
                    (B) by striking the period at the end of 
                subparagraph (B) and inserting a comma; and
                    (C) by adding after and below subparagraph (B) the 
                following:
        ``and may elect qualified prescription drug coverage in 
        accordance with section 1860A.''; and
            (2) in subsection (g)(1), by inserting ``and section 
        1860A(c)(2)(B)'' after ``in this subsection''.
    (c) Effective Date.--The amendments made by this section apply to 
coverage provided on or after January 1, 2005.

SEC. 103. MEDICAID AMENDMENTS.

    (a) Determinations of Eligibility for Low-Income Subsidies.--
            (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
        amended--
                    (A) by striking ``and'' at the end of paragraph 
                (64);
                    (B) by striking the period at the end of paragraph 
                (65) and inserting ``; and''; and
                    (C) by inserting after paragraph (65) the following 
                new paragraph:
            ``(66) provide for making eligibility determinations under 
        section 1935(a).''.
            (2) New section.--Title XIX is further amended--
                    (A) by redesignating section 1935 as section 1936; 
                and
                    (B) by inserting after section 1934 the following 
                new section:

  ``special provisions relating to medicare prescription drug benefit

    ``Sec. 1935. (a) Requirement for Making Eligibility Determinations 
for Low-Income Subsidies.--As a condition of its State plan under this 
title under section 1902(a)(66) and receipt of any Federal financial 
assistance under section 1903(a), a State shall--
            ``(1) make determinations of eligibility for premium and 
        cost-sharing subsidies under (and in accordance with) section 
        1860G;
            ``(2) inform the Administrator of the Medicare Benefits 
        Administration of such determinations in cases in which such 
        eligibility is established; and
            ``(3) otherwise provide such Administrator with such 
        information as may be required to carry out part D of title 
        XVIII (including section 1860G).
    ``(b) Payments for Additional Administrative Costs.--
            ``(1) In general.--The amounts expended by a State in 
        carrying out subsection (a) are, subject to paragraph (2), 
        expenditures reimbursable under the appropriate paragraph of 
        section 1903(a); except that, notwithstanding any other 
        provision of such section, the applicable Federal matching 
        rates with respect to such expenditures under such section 
        shall be increased as follows (but in no case shall the rate as 
        so increased exceed 100 percent):
                    ``(A) For expenditures attributable to costs 
                incurred during 2005, the otherwise applicable Federal 
                matching rate shall be increased by 10 percent of the 
                percentage otherwise payable (but for this subsection) 
                by the State.
                    ``(B)(i) For expenditures attributable to costs 
                incurred during 2006 and each subsequent year through 
                2013, the otherwise applicable Federal matching rate 
                shall be increased by the applicable percent (as 
                defined in clause (ii)) of the percentage otherwise 
                payable (but for this subsection) by the State.
                    ``(ii) For purposes of clause (i), the `applicable 
                percent' for--
                            ``(I) 2006 is 20 percent; or
                            ``(II) a subsequent year is the applicable 
                        percent under this clause for the previous year 
                        increased by 10 percentage points.
                    ``(C) For expenditures attributable to costs 
                incurred after 2013, the otherwise applicable Federal 
                matching rate shall be increased to 100 percent.
            ``(2) Coordination.--The State shall provide the 
        Administrator with such information as may be necessary to 
        properly allocate administrative expenditures described in 
        paragraph (1) that may otherwise be made for similar 
        eligibility determinations.''.
    (b) Phased-In Federal Assumption of Medicaid Responsibility for 
Premium and Cost-Sharing Subsidies for Dually Eligible Individuals.--
            (1) In general.--Section 1903(a)(1) (42 U.S.C. 1396b(a)(1)) 
        is amended by inserting before the semicolon the following: ``, 
        reduced by the amount computed under section 1935(c)(1) for the 
        State and the quarter''.
            (2) Amount described.--Section 1935, as inserted by 
        subsection (a)(2), is amended by adding at the end the 
        following new subsection:
    ``(c) Federal Assumption of Medicaid Prescription Drug Costs for 
Dually-Eligible Beneficiaries.--
            ``(1) In general.--For purposes of section 1903(a)(1), for 
        a State that is one of the 50 States or the District of 
        Columbia for a calendar quarter in a year (beginning with 2005) 
        the amount computed under this subsection is equal to the 
        product of the following:
                    ``(A) Medicare subsidies.--The total amount of 
                payments made in the quarter under section 1860G 
                (relating to premium and cost-sharing prescription drug 
                subsidies for low-income medicare beneficiaries) that 
                are attributable to individuals who are residents of 
                the State and are entitled to benefits with respect to 
                prescribed drugs under the State plan under this title 
                (including such a plan operating under a waiver under 
                section 1115).
                    ``(B) State matching rate.--A proportion computed 
                by subtracting from 100 percent the Federal medical 
                assistance percentage (as defined in section 1905(b)) 
                applicable to the State and the quarter.
                    ``(C) Phase-out proportion.--The phase-out 
                proportion (as defined in paragraph (2)) for the 
                quarter.
            ``(2) Phase-out proportion.--For purposes of paragraph 
        (1)(C), the `phase-out proportion' for a calendar quarter in--
                    ``(A) 2005 is 90 percent;
                    ``(B) a subsequent year before 2014, is the phase-
                out proportion for calendar quarters in the previous 
                year decreased by 10 percentage points; or
                    ``(C) a year after 2013 is 0 percent.''.
    (c) Medicaid Providing Wrap-Around Benefits.--Section 1935, as so 
inserted and amended, is further amended by adding at the end the 
following new subsection:
    ``(d) Additional Provisions.--
            ``(1) Medicaid as secondary payor.--In the case of an 
        individual who is entitled to qualified prescription drug 
        coverage under a prescription drug plan under part D of title 
        XVIII (or under a Medicare+Choice plan under part C of such 
        title) and medical assistance for prescribed drugs under this 
        title, medical assistance shall continue to be provided under 
        this title for prescribed drugs to the extent payment is not 
        made under the prescription drug plan or the Medicare+Choice 
        plan selected by the individual.
            ``(2) Condition.--A State may require, as a condition for 
        the receipt of medical assistance under this title with respect 
        to prescription drug benefits for an individual eligible to 
        obtain qualified prescription drug coverage described in 
        paragraph (1), that the individual elect qualified prescription 
        drug coverage under section 1860A.''.
    (d) Treatment of Territories.--
            (1) In general.--Section 1935, as so inserted and amended, 
        is further amended--
                    (A) in subsection (a) in the matter preceding 
                paragraph (1), by inserting ``subject to subsection 
                (e)'' after ``section 1903(a)'';
                    (B) in subsection (c)(1), by inserting ``subject to 
                subsection (e)'' after ``1903(a)(1)''; and
                    (C) by adding at the end the following new 
                subsection:
    ``(e) Treatment of Territories.--
            ``(1) In general.--In the case of a State, other than the 
        50 States and the District of Columbia--
                    ``(A) the previous provisions of this section shall 
                not apply to residents of such State; and
                    ``(B) if the State establishes a plan described in 
                paragraph (2) (for providing medical assistance with 
                respect to the provision of prescription drugs to 
                medicare beneficiaries), the amount otherwise 
                determined under section 1108(f) (as increased under 
                section 1108(g)) for the State shall be increased by 
                the amount specified in paragraph (3).
            ``(2) Plan.--The plan described in this paragraph is a plan 
        that--
                    ``(A) provides medical assistance with respect to 
                the provision of covered outpatient drugs (as defined 
                in section 1860B(f)) to low-income medicare 
                beneficiaries; and
                    ``(B) assures that additional amounts received by 
                the State that are attributable to the operation of 
                this subsection are used only for such assistance.
            ``(3) Increased amount.--
                    ``(A) In general.--The amount specified in this 
                paragraph for a State for a year is equal to the 
                product of--
                            ``(i) the aggregate amount specified in 
                        subparagraph (B); and
                            ``(ii) the amount specified in section 
                        1108(g)(1) for that State, divided by the sum 
                        of the amounts specified in such section for 
                        all such States.
                    ``(B) Aggregate amount.--The aggregate amount 
                specified in this subparagraph for--
                            ``(i) 2005, is equal to $20,000,000; or
                            ``(ii) a subsequent year, is equal to the 
                        aggregate amount specified in this subparagraph 
                        for the previous year increased by annual 
                        percentage increase specified in section 
                        1860B(b)(5) for the year involved.
            ``(4) Report.--The Administrator shall submit to Congress a 
        report on the application of this subsection and may include in 
        the report such recommendations as the Administrator deems 
        appropriate.''.
            (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 
        1308(f)) is amended by inserting ``and section 1935(e)(1)(B)'' 
        after ``Subject to subsection (g)''.
    (e) Amendment to Best Price.--Section 1927(c)(1)(C)(i) (42 U.S.C. 
1396r-8(c)(1)(C)(i)) is amended--
            (1) by striking ``and'' at the end of subclause (III);
            (2) by striking the period at the end of subclause (IV) and 
        inserting ``; and''; and
            (3) by adding at the end the following new subclause:
                                    ``(V) any prices charged which are 
                                negotiated by a prescription drug plan 
                                under part D of title XVIII, by a 
                                Medicare+Choice plan under part C of 
                                such title with respect to covered 
                                outpatient drugs, or by a qualified 
                                retiree prescription drug plan (as 
                                defined in section 1860H(f)(1)) with 
                                respect to such drugs on behalf of 
                                individuals entitled to benefits under 
                                part A or enrolled under part B of such 
                                title.''.

SEC. 104. MEDIGAP TRANSITION.

    (a) In General.--Section 1882 (42 U.S.C. 1395ss) is amended by 
adding at the end the following new subsection:
    ``(v) Coverage of Prescription Drugs.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, except as provided in paragraph (3) no new medicare 
        supplemental policy that provides coverage of expenses for 
        prescription drugs may be issued under this section on or after 
        January 1, 2005, to an individual unless it replaces a medicare 
        supplemental policy that was issued to that individual and that 
        provided some coverage of expenses for prescription drugs.
            ``(2) Issuance of substitute policies if obtain 
        prescription drug coverage under part d.--
                    ``(A) In general.--The issuer of a medicare 
                supplemental policy--
                            ``(i) may not deny or condition the 
                        issuance or effectiveness of a medicare 
                        supplemental policy that has a benefit package 
                        classified as `A', `B', `C', `D', `E', `F', or 
                        `G' (under the standards established under 
                        subsection (p)(2)) and that is offered and is 
                        available for issuance to new enrollees by such 
                        issuer;
                            ``(ii) may not discriminate in the pricing 
                        of such policy, because of health status, 
                        claims experience, receipt of health care, or 
                        medical condition; and
                            ``(iii) may not impose an exclusion of 
                        benefits based on a pre-existing condition 
                        under such policy,
                in the case of an individual described in subparagraph 
                (B) who seeks to enroll under the policy not later than 
                63 days after the date of the termination of enrollment 
                described in such paragraph and who submits evidence of 
                the date of termination or disenrollment along with the 
                application for such medicare supplemental policy.
                    ``(B) Individual covered.--An individual described 
                in this subparagraph is an individual who--
                            ``(i) enrolls in a prescription drug plan 
                        under part D; and
                            ``(ii) at the time of such enrollment was 
                        enrolled and terminates enrollment in a 
                        medicare supplemental policy which has a 
                        benefit package classified as `H', `I', or `J' 
                        under the standards referred to in subparagraph 
                        (A)(i) or terminates enrollment in a policy to 
                        which such standards do not apply but which 
                        provides benefits for prescription drugs.
                    ``(C) Enforcement.--The provisions of paragraph (4) 
                of subsection (s) shall apply with respect to the 
                requirements of this paragraph in the same manner as 
                they apply to the requirements of such subsection.
            ``(3) New standards.--In applying subsection (p)(1)(E) 
        (including permitting the NAIC to revise its model regulations 
        in response to changes in law) with respect to the change in 
        benefits resulting from title I of the Medicare Modernization 
        and Prescription Drug Act of 2002, with respect to policies 
        issued to individuals who are enrolled under part D, the 
        changes in standards shall only provide for substituting for 
        the benefit packages that included coverage for prescription 
        drugs two benefit packages that may provide for coverage of 
        cost-sharing with respect to qualified prescription drug 
        coverage under such part, except that such coverage may not 
        cover the prescription drug deductible under such part. The two 
        benefit packages shall be consistent with the following:
                    ``(A) First new policy.--The policy described in 
                this subparagraph has the following benefits, 
                notwithstanding any other provision of this section 
                relating to a core benefit package:
                            ``(i) Coverage of 50 percent of the cost-
                        sharing otherwise applicable, except coverage 
                        of 100 percent of any cost-sharing otherwise 
                        applicable for preventive benefits.
                            ``(ii) No coverage of the part B 
                        deductible.
                            ``(iii) Coverage for all hospital 
                        coinsurance for long stays (as in the current 
                        core benefit package).
                            ``(iv) A limitation on annual out-of-pocket 
                        expenditures to $4,000 in 2005 (or, in a 
                        subsequent year, to such limitation for the 
                        previous year increased by an appropriate 
                        inflation adjustment specified by the 
                        Secretary).
                    ``(B) Second new policy.--The policy described in 
                this subparagraph has the same benefits as the policy 
                described in subparagraph (A), except as follows:
                            ``(i) Substitute `75 percent' for `50 
                        percent' in clause (i) of such subparagraph.
                            ``(ii) Substitute `$2,000' for `$4,000' in 
                        clause (iv) of such subparagraph.
            ``(4) Construction.--Any provision in this section or in a 
        medicare supplemental policy relating to guaranteed 
        renewability of coverage shall be deemed to have been met 
        through the offering of other coverage under this 
        subsection.''.

SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD ENDORSEMENT PROGRAM.

    (a) In General.--Title XVIII is amended by inserting after section 
1806 the following new sections:

     ``medicare prescription drug discount card endorsement program

    ``Sec. 1807. (a) In General.--The Secretary (or the Medicare 
Benefits Administrator pursuant to section 1808(c)(3)(C)) shall 
establish a program--
            ``(1) to endorse prescription drug discount card programs 
        that meet the requirements of this section; and
            ``(2) to make available to medicare beneficiaries 
        information regarding such endorsed programs.
    ``(b) Requirements for Endorsement.--The Secretary may not endorse 
a prescription drug discount card program under this section unless the 
program meets the following requirements:
            ``(1) Savings to medicare beneficiaries.--The program 
        passes on to medicare beneficiaries who enroll in the program 
        discounts on prescription drugs, including discounts negotiated 
        with manufacturers.
            ``(2) Prohibition on application only to mail order.--The 
        program applies to drugs that are available other than solely 
        through mail order.
            ``(3) Beneficiary services.--The program provides 
        pharmaceutical support services, such as education and 
        counseling, and services to prevent adverse drug interactions.
            ``(4) Information.--The program makes available to medicare 
        beneficiaries through the Internet and otherwise information, 
        including information on enrollment fees, prices charged to 
        beneficiaries, and services offered under the program, that the 
        Secretary identifies as being necessary to provide for informed 
        choice by beneficiaries among endorsed programs.
            ``(5) Demonstrated experience.--The entity operating the 
        program has demonstrated experience and expertise in operating 
        such a program or a similar program.
            ``(6) Quality assurance.--The entity has in place adequate 
        procedures for assuring quality service under the program.
            ``(7) Operation of assistance program.--The entity meets 
        such requirements relating to solvency, compliance with 
        financial reporting requirements, audit compliance, and 
        contractual guarantees as the Secretary finds necessary for the 
        participation of the sponsor in the low-income assistance 
        program under section 1807A.
            ``(8) Enrollment fees.--The program may charge an annual 
        enrollment fee, but the amount of such annual fee may not 
        exceed $25.
            ``(9) Additional beneficiary protections.--The program 
        meets such additional requirements as the Secretary identifies 
        to protect and promote the interest of medicare beneficiaries, 
        including requirements that ensure that beneficiaries are not 
        charged more than the lower of the negotiated retail price or 
        the usual and customary price.
The prices negotiated by a prescription drug discount card program 
endorsed under this section shall (notwithstanding any other provision 
of law) not be taken into account for the purposes of establishing the 
best price under section 1927(c)(1)(C).
    ``(c) Program Operation.--The Secretary shall operate the program 
under this section consistent with the following:
            ``(1) Promotion of informed choice.--In order to promote 
        informed choice among endorsed prescription drug discount card 
        programs, the Secretary shall provide for the dissemination of 
        information which compares the prices and services of such 
        programs in a manner coordinated with the dissemination of 
        educational information on Medicare+Choice plans under part C.
            ``(2) Oversight.--The Secretary shall provide appropriate 
        oversight to ensure compliance of endorsed programs with the 
        requirements of this section, including verification of the 
        discounts and services provided.
            ``(3) Use of medicare toll-free number.--The Secretary 
        shall provide through the 1-800-medicare toll free telephone 
        number for the receipt and response to inquiries and complaints 
        concerning the program and programs endorsed under this 
        section.
            ``(4) Sanctions for abusive practices.--The Secretary may 
        implement intermediate sanctions or may revoke the endorsement 
        of a program in the case of a program that the Secretary 
        determines no longer meets the requirements of this section or 
        that has engaged in false or misleading marketing practices.
            ``(5) Enrollment practices.--A medicare beneficiary may not 
        be enrolled in more than one endorsed program at any time. A 
        medicare beneficiary may change the endorsed program in which 
        the beneficiary is enrolled, but may not make such change until 
        the beneficiary has been enrolled in a program for a minimum 
        period of time specified by the Secretary.
    ``(d) Transition.--The Secretary shall provide for an appropriate 
transition and discontinuation of the program under this section at the 
time prescription drug benefits first become available under part D.
    ``(e) Endorsement Condition.--The Secretary shall require, as 
condition of endorsement under of a prescription drug discount card 
program under this section that the program implement policies and 
procedures to safeguard the use and disclosure of program 
beneficiaries' individually identifiable health information in a manner 
consistent with the Federal regulations (concerning the privacy of 
individually identifiable health information) promulgated under section 
264(c) of the Health Insurance Portability and Accountability Act of 
1996.
    ``(f) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out the program 
under this section and section 1807A.

  ``transitional prescription drug assistance program for low-income 
                             beneficiaries

    ``Sec. 1807A. (a) Purpose.--The purpose of this section is to 
provide low-income medicare beneficiaries with immediate assistance in 
the purchase of covered outpatient prescription drugs during the period 
before the program under part D becomes effective.
    ``(b) Funds Available; Allotments.--
            ``(1) Appropriations; total allotments.--
                    ``(A) Appropriations.--For the purpose of carrying 
                out this section, there is appropriated, out of any 
                money in the Treasury not otherwise appropriated--
                            ``(i) for fiscal year 2003, $300,000,000;
                            ``(ii) for fiscal year 2004, 
                        $2,100,000,000; and
                            ``(iii) for fiscal year 2005, $500,000,000.
            ``(2) Allotments.--
                    ``(A) Among residents of 50 states and the district 
                of columbia.--Subject to subparagraph (B), the amount 
                appropriated under subparagraph (A) for each fiscal 
                year shall be allotted among the 50 States and the 
                District of Columbia based upon the Secretary's 
                estimate of each State's or District's proportion of 
                the total number of medicare beneficiaries with income 
                below 175 percent of the Federal poverty line residing 
                in all such States and the District. The Secretary 
                shall determine the amount of the allotment for each 
                such State and District not later than July 1, 2003.
                    ``(B) Among residents of territories.--Of the 
                amount appropriated under subparagraph (A) for a fiscal 
                year, the Secretary shall allot a percentage 
                (determined consistent with the allotment provided to 
                territories under the State children's health insurance 
                program under section 2104(c)) among the commonwealths 
                and territories described in section 2104(c)(3) in the 
                same proportion as the allotment proportion under such 
                program is allowed among such commonwealths and 
                territories.
            ``(3) Availability of amounts allotted.--Amounts allotted 
        with respect to a State pursuant to this subsection for a 
        fiscal year shall remain available for expenditure through the 
        end of the fiscal year in which benefits are first available 
        under part D. Any funds allotted to States that are not 
        obligated revert to the General Fund of the Treasury.
            ``(4) Limitation.--In no case shall the total amount of 
        payments for assistance to eligible individuals (and 
        administrative costs) in a State for a fiscal year (and 
        previous fiscal years) under this section exceed the amount of 
        the allotments with respect to that State in that year (and 
        previous fiscal years). Nothing in this section shall be 
        construed as preventing a State from providing, with its own 
        funds, pharmaceutical assistance that is in addition to the 
        assistance funded under this section.
    ``(c) Eligibility.--
            ``(1) In general.--Taking into account the amounts allotted 
        with respect to each State under subsection (b) and the minimum 
        dollar value on assistance per eligible individual specified by 
        the Secretary under subsection (d)(3), the Secretary shall 
        establish guidelines for the establishment by each State of 
        eligibility standards consistent with paragraph (2).
            ``(2) Eligibility restrictions.--In no case shall an 
        individual residing in a State be eligible for assistance under 
        this section unless the individual--
                    ``(A) is entitled to benefits under part A or 
                enrolled under part B;
                    ``(B) has income that is at or below a percentage 
                (specified under the State eligibility plan under 
                paragraph (1), but not to exceed 175 percent) of the 
                Federal poverty line; and
                    ``(C) meets the resources requirement described in 
                section 1905(p)(1)(C);
                    ``(D) is enrolled under a prescription drug 
                discount card program (or under an alternative program 
                authorized under subsection (d)(1)(B)); and
                    ``(E) is not eligible for coverage of, or 
                assistance for, outpatient prescription drugs under any 
                of the following:
                            ``(i) A medicaid plan under title XIX 
                        (including under any waiver approved under 
                        section 1115).
                            ``(ii) Enrollment under a group health plan 
                        or health insurance coverage.
                            ``(iii) Enrollment under a medicare 
                        supplemental insurance policy.
                            ``(iv) Chapter 55 of title 10, United 
                        States Code (relating to medical and dental 
                        care for members of the uniformed services).
                            ``(v) Chapter 17 of title 38, United States 
                        Code (relating to Veterans' medical care).
                            ``(vi) Enrollment under a plan under 
                        chapter 89 of title 5, United States Code 
                        (relating to the Federal employees' health 
                        benefits program).
                            ``(vii) The Indian Health Care Improvement 
                        Act (25 U.S.C. 1601 et seq.).
            ``(3) Income determinations.--The provisions of section 
        1860G(4)(C) shall apply for purposes of applying this 
        subsection.
    ``(d) Form of Assistance and Amount of Benefits.--
            ``(1) In general.--
                    ``(A) Through program sponsor.--Subject to 
                subparagraph (B), the assistance under this section to 
                an eligible individual shall be in the form of a 
                discount (as identified by the sponsor to the 
                Secretary) provided by the sponsor of a prescription 
                drug discount card program to eligible individuals who 
                are enrolled in such program.
                    ``(B) Through alternative state program.--A State 
                may apply to the Secretary for authorization to provide 
                the assistance under this section to an eligible 
                individual through a State pharmaceutical assistance 
                program or private program of pharmaceutical 
                assistance. The Secretary shall not authorize the use 
                of such a program unless the Secretary finds that the 
                program--
                            ``(i) was in existence before the date of 
                        the enactment of this section; and
                            ``(ii) is reasonably designed to provide 
                        for pharmaceutical assistance for a number of 
                        individuals, and in a scope, that is not less 
                        than the number of individuals, and minimum 
                        required amount, that would occur if the 
                        provisions of this subparagraph had not applied 
                        in the State.
            ``(2) Guidance; minimum level of assistance.--The Secretary 
        shall establish guidelines for how the program under this 
        section will operate. Based upon the aggregate amount 
        appropriated in each fiscal year and other relevant factors, 
        the Secretary shall establish a minimum amount of assistance 
        that is available, subject to paragraph (4)(B), to each 
        eligible individual for each calendar quarter (or other period 
        specified by the Secretary) and provide guidance to sponsors 
        regarding how assistance funds may be provided to eligible 
        individuals consistent with such amount and funding 
        limitations.
            ``(3) Relationship to discounts.--The assistance provided 
        under this section is in addition to the discount otherwise 
        available to individuals enrolled in prescription drug discount 
        card programs who are not eligible individuals.
            ``(4) Limitation on assistance.--
                    ``(A) In general.--The assistance under this 
                section for an eligible individual shall be limited to 
                assistance--
                            ``(i) for covered outpatient drugs (as 
                        defined in section 1860B(f)) and for enrollment 
                        fees imposed under prescription drug discount 
                        card programs; and
                            ``(ii) for expenses incurred--
                                    ``(I) on and after the date the 
                                individual is both enrolled in the 
                                prescription drug discount card program 
                                and determined to be an eligible 
                                individual under this section; and
                                    ``(II) before the date benefits are 
                                first available under the program under 
                                part D.
                    ``(B) Authority.--The Secretary shall take such 
                steps as may be necessary to assure compliance with the 
                expenditure limitations described in subsection (b)(4).
    ``(e) Payment of Federal Subsidy to Sponsors.--
            ``(1) In general.--The Secretary shall make payment (within 
        the allotments for each State, less the administrative payments 
        made subsection (f)(2) to each State) to the sponsor of the 
        prescription drug discount card program (or to a State or other 
        entity operating a program under subsection (d)(1)(B)) in which 
        an eligible individual is enrolled of the amount of the 
        assistance provided by the sponsor pursuant to this section.
            ``(2) Periodic payments.--Payments under this subsection 
        (and subsection (f)(2)) shall be made on a monthly or other 
        periodic installment basis, based upon estimates of the 
        Secretary and shall be reduced or increased to the extent of 
        any overpayment or underpayment which the Secretary determines 
        was made under this section for any prior period and with 
        respect to which adjustment has not already been made under 
        this paragraph.
    ``(f) State Responsibilities.--
            ``(1) Eligibility determinations.--As a condition for the 
        payment of Federal financial participation to a State under 
        section 1903(a) for periods during which assistance is 
        available under this section, the State must submit to the 
        Secretary an eligibility plan under which the State--
                    ``(A) establishes eligibility standards consistent 
                with the provisions of this section;
                    ``(B) conducts determinations of eligibility and 
                income in the same manner as the State is required to 
                make eligibility and income determinations described in 
                section 1860G(a)(4); and
                    ``(C) communicates to the Secretary (or the 
                Secretary's designee) determinations of eligibility or 
                discontinuation of eligibility under this section.
        The Secretary shall provide a method for communicating with 
        sponsors concerning the identity of eligible individuals.
            ``(2) Coverage of administrative costs.--Of the amount 
        allotted with respect to a State under subsection (b), the 
        Secretary shall pay to the State the amount of its 
        administrative costs in carrying out this subsection, but not 
        to exceed 10 percent of the amount of such allotment to the 
        State. The provisions of subsection (e)(2) shall apply to such 
        payments.
    ``(g) Definitions.--For purposes of this section:
            ``(1) Eligible individual.--The term `eligible individual' 
        means an individual who is determined by a State to be eligible 
        for assistance under this section.
            ``(2) Prescription drug discount card program.--The term 
        `prescription drug discount card program' means such a program 
        that is endorsed under section 1807.
            ``(3) Sponsor.--The term `sponsor' means the sponsor of a 
        prescription drug discount card program, or, in the case of a 
        program authorized under subsection (d)(1)(B), the State or 
        other entity operating the program.
            ``(4) State.--The term `State' has the meaning given such 
        term for purposes of title XIX.''.
    (b) Conforming Amendment.--Section 1927(c)(1)(C)(i)(V) (42 U.S.C. 
1396r-8(c)(1)(C)(i)(V)), as added by section 103(e), is amended by 
striking ``or by a qualified retiree prescription drug plan (as defined 
in section 1860H(f)(1))'' and inserting ``by a qualified retiree 
prescription drug plan (as defined in section 1860H(f)(1)), or by a 
prescription drug discount card program endorsed under section 1807''.

SEC. 106. GAO STUDY OF THE EFFECTIVENESS OF THE NEW PRESCRIPTION DRUG 
              PROGRAM.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study on the effectiveness of the prescription drug program 
provided under part D of title XVIII of the Social Security Act. Such 
study shall--
            (1) report--
                    (A) the percentage of eligible individuals who 
                enrolled in the program;
                    (B) the demographic characteristics (including 
                health status) of such enrollees;
                    (C) the number and type of qualified prescription 
                drug coverage available to such individuals; and
                    (D) the premiums imposed for enrollment in 
                different areas;
            (2) evaluate the processes and methods developed by the 
        Administrator and the decisions reached by outside actuaries to 
        determine the actuarial valuation of prescription drug 
        coverage; and
            (3) assess whether the subsidy payments under such part 
        accomplished its stated goals of reducing premium levels for 
        all beneficiaries, reducing adverse selection, and promoting 
        participation of PDP sponsors.
    (b) Report.--Not later January 1, 2006, the Comptroller General 
shall submit a report to Congress on the study conducted under 
subsection (a).

     TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE 
                          COMPETITION PROGRAM

               Subtitle A--Medicare+Choice Revitalization

SEC. 201. MEDICARE+CHOICE IMPROVEMENTS.

    (a) Equalizing Payments Between Fee-For-Service and 
Medicare+Choice.--
            (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended by adding at the end the following:
                    ``(D) Based on 100 percent of fee-for-service 
                costs.--
                            ``(i) In general.--For 2003 and 2004, the 
                        adjusted average per capita cost for the year 
                        involved, determined under section 1876(a)(4) 
                        for the Medicare+Choice payment area for 
                        services covered under parts A and B for 
                        individuals entitled to benefits under part A 
                        and enrolled under part B who are not enrolled 
                        in a Medicare+Choice plan under this part for 
                        the year, but adjusted to exclude costs 
                        attributable to payments under section 1886(h).
                            ``(ii) Inclusion of costs of va and dod 
                        military facility services to medicare-eligible 
                        beneficiaries.--In determining the adjusted 
                        average per capita cost under clause (i) for a 
                        year, such cost shall be adjusted to include 
                        the Secretary's estimate, on a per capita 
                        basis, of the amount of additional payments 
                        that would have been made in the area involved 
                        under this title if individuals entitled to 
                        benefits under this title had not received 
                        services from facilities of the Department of 
                        Veterans Affairs or the Department of 
                        Defense.''.
            (2) Conforming amendment.--Such section is further amended, 
        in the matter before subparagraph (A), by striking ``or (C)'' 
        and inserting ``(C), or (D)''.
    (b) Revision of Blend.--
            (1) Revision of national average used in calculation of 
        blend.--Section 1853(c)(4)(B)(i)(II) (42 U.S.C. 1395w-
        23(c)(4)(B)(i)(II)) is amended by inserting ``who (with respect 
        to determinations for 2003 and for 2004) are enrolled in a 
        Medicare+Choice plan'' after ``the average number of medicare 
        beneficiaries''.
            (2) Change in budget neutrality.--Section 1853(c) (42 
        U.S.C. 1395w-23(c)) is amended--
                    (A) in paragraph (1)(A), by inserting ``(for a year 
                before 2003)'' after ``multiplied''; and
                    (B) in paragraph (5), by inserting ``(before 
                2003)'' after ``for each year''.
    (c) Revision in Minimum Percentage Increase for 2003 and 2004.--
Section 1853(c)(1)(C) (42 U.S.C. 1395w-23(c)(1)(C)) is amended by 
striking clause (iv) and inserting the following:
                            ``(iv) For 2002, 102 percent of the annual 
                        Medicare+Choice capitation rate under this 
                        paragraph for the area for 2001.
                            ``(v) For 2003 and 2004, 103 percent of the 
                        annual Medicare+Choice capitation rate under 
                        this paragraph for the area for the previous 
                        year.
                            ``(vi) For 2005 and each succeeding year, 
                        102 percent of the annual Medicare+Choice 
                        capitation rate under this paragraph for the 
                        area for the previous year.''.
    (d) Inclusion of Costs of DOD and VA Military Facility Services to 
Medicare-eligible Beneficiaries in Calculation of Medicare+Choice 
Payment Rates.--Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) is 
amended--
            (1) in subparagraph (A), by striking ``subparagraph (B)'' 
        and inserting ``subparagraphs (B) and (E)'', and
            (2) by adding at the end the following new subparagraph:
                    ``(E) Inclusion of costs of dod and va military 
                facility services to medicare-eligible beneficiaries.--
                In determining the area-specific Medicare+Choice 
                capitation rate under subparagraph (A) for a year 
                (beginning with 2003), the annual per capita rate of 
                payment for 1997 determined under section 1876(a)(1)(C) 
                shall be adjusted to include in the rate the 
                Secretary's estimate, on a per capita basis, of the 
                amount of additional payments that would have been made 
                in the area involved under this title if individuals 
                entitled to benefits under this title had not received 
                services from facilities of the Department of Defense 
                or the Department of Veterans Affairs.''.
    (e) Announcement of Revised Medicare+Choice Payment Rates.--Within 
4 weeks after the date of the enactment of this Act, the Secretary 
shall determine, and shall announce (in a manner intended to provide 
notice to interested parties) Medicare+Choice capitation rates under 
section 1853 of the Social Security Act (42 U.S.C. 1395w-23) for 2003, 
revised in accordance with the provisions of this section.
    (f) MedPAC Study of AAPCC.--
            (1) Study.--The Medicare Payment Advisory Commission shall 
        conduct a study that assesses the method used for determining 
        the adjusted average per capita cost (AAPCC) under section 
        1876(a)(4) of the Social Security Act (42 U.S.C. 1395mm(a)(4)). 
        Such study shall examine--
                    (A) the bases for variation in such costs between 
                different areas, including differences in input prices, 
                utilization, and practice patterns;
                    (B) the appropriate geographic area for payment 
                under the Medicare+Choice program under part C of title 
                XVIII of such Act; and
                    (C) the accuracy of risk adjustment methods in 
                reflecting differences in costs of providing care to 
                different groups of beneficiaries served under such 
                program.
            (2) Report.--Not later than 9 months after the date of the 
        enactment of this Act, the Commission shall submit to Congress 
        a report on the study conducted under paragraph (1). Such 
        report shall include recommendations regarding changes in the 
        methods for computing the adjusted average per capita cost 
        among different areas.
    (g) Report on Impact of Increased Financial Assistance to 
Medicare+Choice Plans.--Not later than July 1, 2003, the Secretary of 
Health and Human Services shall submit to Congress a report that 
describes the impact of additional financing provided under this Act 
and other Acts (including the Medicare, Medicaid, and SCHIP Balanced 
Budget Refinement Act of 1999 and BIPA) on the availability of 
Medicare+Choice plans in different areas and its impact on lowering 
premiums and increasing benefits under such plans.

SEC. 202. MAKING PERMANENT CHANGE IN MEDICARE+CHOICE REPORTING 
              DEADLINES AND ANNUAL, COORDINATED ELECTION PERIOD.

    (a) Change in Reporting Deadline.--Section 1854(a)(1) (42 U.S.C. 
1395w-24(a)(1)), as amended by section 532(b)(1) of the Public Health 
Security and Bioterrorism Preparedness and Response Act of 2002, is 
amended by striking ``2002, 2003, and 2004 (or July 1 of each other 
year)'' and inserting ``2002 and each subsequent year (or July 1 of 
each year before 2002)''.
    (b) Delay in Annual, Coordinated Election Period.--Section 
1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)), as amended by section 
532(c)(1)(A) of the Public Health Security and Bioterrorism 
Preparedness and Response Act of 2002, is amended by striking ``and 
after 2005, the month of November before such year and with respect to 
2003, 2004, and 2005'' and inserting ``, the month of November before 
such year and with respect to 2003 and any subsequent year''.
    (c) Annual Announcement of Payment Rates.--Section 1853(b)(1) (42 
U.S.C. 1395w-23(b)(1)), as amended by section 532(d)(1) of the Public 
Health Security and Bioterrorism Preparedness and Response Act of 2002, 
is amended by striking ``and after 2005 not later than March 1 before 
the calendar year concerned and for 2004 and 2005'' and inserting ``not 
later than March 1 before the calendar year concerned and for 2004 and 
each subsequent year''.
    (d) Requiring Provision of Available Information Comparing Plan 
Options.--The first sentence of section 1851(d)(2)(A)(ii) (42 U.S.C. 
1395w-21(d)(2)(A)(ii)) is amended by inserting before the period the 
following: ``to the extent such information is available at the time of 
preparation of materials for the mailing''.

SEC. 203. AVOIDING DUPLICATIVE STATE REGULATION.

    (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-26(b)(3)) is 
amended to read as follows:
            ``(3) Relation to state laws.--The standards established 
        under this subsection shall supersede any State law or 
        regulation (other than State licensing laws or State laws 
        relating to plan solvency) with respect to Medicare+Choice 
        plans which are offered by Medicare+Choice organizations under 
        this part.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 204. SPECIALIZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS 
              BENEFICIARIES.

    (a) Treatment as Coordinated Care Plan.--Section 1851(a)(2)(A) (42 
U.S.C. 1395w-21(a)(2)(A)) is amended by adding at the end the following 
new sentence: ``Specialized Medicare+Choice plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be any type of 
coordinated care plan.''.
    (b) Specialized Medicare+Choice Plan for Special Needs 
Beneficiaries Defined.--Section 1859(b) (42 U.S.C. 1395w-29(b)) is 
amended by adding at the end the following new paragraph:
            ``(4) Specialized medicare+choice plans for special needs 
        beneficiaries.--
                    ``(A) In general.--The term `specialized 
                Medicare+Choice plan for special needs beneficiaries' 
                means a Medicare+Choice plan that exclusively serves 
                special needs beneficiaries (as defined in subparagraph 
                (B)).
                    ``(B) Special needs beneficiary.--The term `special 
                needs beneficiary' means a Medicare+Choice eligible 
                individual who--
                            ``(i) is institutionalized (as defined by 
                        the Secretary);
                            ``(ii) is entitled to medical assistance 
                        under a State plan under title XIX; or
                            ``(iii) meets such requirements as the 
                        Secretary may determine would benefit from 
                        enrollment in such a specialized 
                        Medicare+Choice plan described in subparagraph 
                        (A) for individuals with severe or disabling 
                        chronic conditions.''.
    (c) Restriction on Enrollment Permitted.--Section 1859 (42 U.S.C. 
1395w-29) is amended by adding at the end the following new subsection:
    ``(f) Restriction on Enrollment for Specialized Medicare+Choice 
Plans for Special Needs Beneficiaries.--In the case of a specialized 
Medicare+Choice plan (as defined in subsection (b)(4)), notwithstanding 
any other provision of this part and in accordance with regulations of 
the Secretary and for periods before January 1, 2007, the plan may 
restrict the enrollment of individuals under the plan to individuals 
who are within one or more classes of special needs beneficiaries.''.
    (d) Report to Congress.--Not later than December 31, 2005, the 
Medicare Benefits Administrator shall submit to Congress a report that 
assesses the impact of specialized Medicare+Choice plans for special 
needs beneficiaries on the cost and quality of services provided to 
enrollees. Such report shall include an assessment of the costs and 
savings to the medicare program as a result of amendments made by 
subsections (a), (b), and (c).
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections (a), 
        (b), and (c) shall take effect upon the date of the enactment 
        of this Act.
            (2) Deadline for issuance of requirements for special needs 
        beneficiaries; transition.--No later than 6 months after the 
        date of the enactment of this Act, the Secretary of Health and 
        Human Services shall issue final regulations to establish 
        requirements for special needs beneficiaries under section 
        1859(b)(4)(B)(iii) of the Social Security Act, as added by 
        subsection (b).

SEC. 205. MEDICARE MSAS.

    (a) Exemption from Reporting Enrollee Encounter Data.--
            (1) In general.--Section 1852(e)(1) (42 U.S.C. 1395w-
        22(e)(1)) is amended by inserting ``(other than MSA plans)'' 
        after ``Medicare+Choice plans''.
            (2) Conforming amendments.--Section 1852 (42 U.S.C. 1395w-
        22) is amended--
                    (A) in subsection (c)(1)(I), by inserting before 
                the period at the end the following: ``if required 
                under such section''; and
                    (B) in subparagraphs (A) and (B) of subsection 
                (e)(2), by striking ``, a non-network MSA plan,'' and 
                ``, non-network msa plans,'' each place it appears.
    (b) Making Program Permanent and Eliminating Cap.--Section 
1851(b)(4) (42 U.S.C. 1395w-21(b)(4)) is amended--
            (1) in the heading, by striking ``on a demonstration 
        basis'';
            (2) by striking the first sentence of subparagraph (A); and
            (3) by striking the second sentence of subparagraph (C).
    (c) Applying Limitations on Balance Billing.--Section 1852(k)(1) 
(42 U.S.C. 1395w-22(k)(1)) is amended by inserting ``or with an 
organization offering a MSA plan'' after ``section 1851(a)(2)(A)''.
    (d) Additional Amendment.--Section 1851(e)(5)(A) (42 U.S.C. 1395w-
21(e)(5)(A)) is amended--
            (1) by adding ``or'' at the end of clause (i);
            (2) by striking ``, or'' at the end of clause (ii) and 
        inserting a semicolon; and
            (3) by striking clause (iii).

SEC. 206. EXTENSION OF REASONABLE COST AND SHMO CONTRACTS.

    (a) Reasonable Cost Contracts.--
            (1) In general.--Section 1876(h)(5)(C) (42 U.S.C. 
        1395mm(h)(5)(C)) is amended--
                    (A) by inserting ``(i)'' after ``(C)'';
                    (B) by inserting before the period the following: 
                ``, except (subject to clause (ii)) in the case of a 
                contract for an area which is not covered in the 
                service area of 1 or more coordinated care 
                Medicare+Choice plans under part C''; and
                    (C) by adding at the end the following new clause:
    ``(ii) In the case in which--
            ``(I) a reasonable cost reimbursement contract includes an 
        area in its service area as of a date that is after December 
        31, 2003;
            ``(II) such area is no longer included in such service area 
        after such date by reason of the operation of clause (i) 
        because of the inclusion of such area within the service area 
        of a Medicare+Choice plan; and
            ``(III) all Medicare+Choice plans subsequently terminate 
        coverage in such area;
such reasonable cost reimbursement contract may be extended and renewed 
to cover such area (so long as it is not included in the service area 
of any Medicare+Choice plan).''.
            (2) Study.--The Medicare Benefits Administrator shall 
        conduct a study of an appropriate transition for plans offered 
        under reasonable cost contracts under section 1876 of the 
        Social Security Act on and after January 1, 2005. Such a 
        transition may take into account whether there are one or more 
        coordinated care Medicare+Choice plans being offered in the 
        areas involved. Not later than February 1, 2004, the 
        Administrator shall submit to Congress a report on such study 
        and shall include recommendations regarding any changes in the 
        amendment made by paragraph (1) as the Administrator determines 
        to be appropriate.
    (b) Extension of Social Health Maintenance Organization (SHMO) 
Demonstration Project.--
            (1) In general.--Section 4018(b)(1) of the Omnibus Budget 
        Reconciliation Act of 1987 is amended by striking ``the date 
        that is 30 months after the date that the Secretary submits to 
        Congress the report described in section 4014(c) of the 
        Balanced Budget Act of 1997'' and inserting ``December 31, 
        2004''.
            (2) SHMOs offering medicare+choice plans.--Nothing in such 
        section 4018 shall be construed as preventing a social health 
        maintenance organization from offering a Medicare+Choice plan 
        under part C of title XVIII of the Social Security Act.

            Subtitle B--Medicare+Choice Competition Program

SEC. 211. MEDICARE+CHOICE COMPETITION PROGRAM.

    (a) Submission of Bid Amounts.--Section 1854 (42 U.S.C. 1395w-24) 
is amended--
            (1) in the heading by inserting ``and bid amounts'' after 
        ``premiums'';
            (2) in subsection (a)(1)(A)--
                    (A) by striking ``(A)'' and inserting ``(A)(i) if 
                the following year is before 2005,''; and
                    (B) by inserting before the semicolon at the end 
                the following: ``or (ii) if the following year is 2005 
                or later, the information described in paragraph 
                (6)(A)''; and
            (3) by adding at the end of subsection (a) the following:
            ``(6) Submission of bid amounts by medicare+choice 
        organizations.--
                    ``(A) Information to be submitted.--The information 
                described in this subparagraph is as follows:
                            ``(i) The monthly aggregate bid amount for 
                        provision of all items and services under this 
                        part and the actuarial basis for determining 
                        such amount.
                            ``(ii) The proportions of such bid amount 
                        that are attributable to--
                                    ``(I) the provision of statutory 
                                non-drug benefits (such portion 
                                referred to in this part as the 
                                `unadjusted non-drug monthly bid 
                                amount');
                                    ``(II) the provision of statutory 
                                prescription drug benefits; and
                                    ``(III) the provision of non-
                                statutory benefits;
                        and the actuarial basis for determining such 
                        proportions.
                            ``(iii) Such additional information as the 
                        Administrator may require to verify the 
                        actuarial bases described in clauses (i) and 
                        (ii).
                    ``(B) Statutory benefits defined.--For purposes of 
                this part:
                            ``(i) The term `statutory non-drug 
                        benefits' means benefits under parts A and B.
                            ``(ii) The term `statutory prescription 
                        drug benefits' means benefits under part D.
                            ``(iii) The term `statutory benefits' means 
                        statutory prescription drug benefits and 
                        statutory non-drug benefits.
                    ``(C) Acceptance and negotiation of bid amounts.--
                The Administrator has the authority to negotiate 
                regarding monthly bid amounts submitted under 
                subparagraph (A) (and the proportion described in 
                subparagraph (A)(ii)). The Administrator may reject 
                such a bid amount or proportion if the Administrator 
                determines that such amount or proportion is not 
                supported by the actuarial bases provided under 
                subparagraph (A).''.
    (b) Providing for Beneficiary Savings for Certain Plans.--
            (1) In general.--Section 1854(b) (42 U.S.C. 1395w-24(b)) is 
        amended--
                    (A) by adding at the end of paragraph (1) the 
                following new subparagraph:
                    ``(C) Beneficiary rebate rule.--
                            ``(i) Requirement.--The Medicare+Choice 
                        plan shall provide to the enrollee a monthly 
                        rebate equal to 75 percent of the average per 
                        capita savings (if any) described in paragraph 
                        (3) applicable to the plan and year involved.
                            ``(iii) Form of rebate.--A rebate required 
                        under this subparagraph shall be provided--
                                    ``(I) through the crediting of the 
                                amount of the rebate towards the 
                                Medicare+Choice monthly supplementary 
                                beneficiary premium or the premium 
                                imposed for prescription drug coverage 
                                under part D;
                                    ``(II) through a direct monthly 
                                payment (through electronic funds 
                                transfer or otherwise); or
                                    ``(III) through other means 
                                approved by the Medicare Benefits 
                                Administrator,
                        or any combination thereof.''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) Computation of average per capita monthly savings.--
        For purposes of paragraph (1)(C)(i), the average per capita 
        monthly savings referred to in such paragraph for a 
        Medicare+Choice plan and year is computed as follows:
                    ``(A) Determination of state-wide average risk 
                adjustment.--
                            ``(i) In general.--The Medicare Benefits 
                        Administrator shall determine, at the same time 
                        rates are promulgated under section 1853(b)(1) 
                        (beginning with 2005), for each State the 
                        average of the risk adjustment factors to be 
                        applied to enrollees under section 
                        1853(a)(1)(A) in that State. In the case of a 
                        State in which a Medicare+Choice plan was 
                        offered in the previous year, the Administrator 
                        may compute such average based upon risk 
                        adjustment factors applied in that State in a 
                        previous year.
                            ``(ii) Treatment of new states.--In the 
                        case of a State in which no Medicare+Choice 
                        plan was offered in the previous year, the 
                        Administrator shall estimate such average. In 
                        making such estimate, the Administrator may use 
                        average risk adjustment factors applied to 
                        comparable States or applied on a national 
                        basis.
                    ``(B) Determination of risk adjusted benchmark and 
                risk-adjusted bid.--For each Medicare+Choice plan 
                offered in a State, the Administrator shall--
                            ``(i) adjust the fee-for-service area-
                        specific non-drug benchmark amount by the 
                        applicable average risk adjustment factor 
                        computed under subparagraph (A); and
                            ``(ii) adjust the unadjusted non-drug 
                        monthly bid amount by such applicable average 
                        risk adjustment factor.
                    ``(C) Determination of average per capita monthly 
                savings.--The average per capita monthly savings 
                described in this subparagraph is equal to the amount 
                (if any) by which--
                            ``(i) the risk-adjusted benchmark amount 
                        computed under subparagraph (B)(i), exceeds
                            ``(ii) the risk-adjusted bid computed under 
                        subparagraph (B)(ii).
                    ``(D) Authority to determine risk adjustment for 
                areas other than states.--The Administrator may provide 
                for the determination and application of risk 
                adjustment factors under this paragraph on the basis of 
                areas other than States.''.
            (2) Computation of fee-for-service area-specific non-drug 
        benchmark.--Section 1853 (42 U.S.C. 1395w-23) is amended by 
        adding at the end the following new subsection:
    ``(j) Computation of Fee-for-Service Area-Specific Non-Drug 
Benchmark Amount.--For purposes of this part, the term `fee-for-service 
area-specific non-drug benchmark amount' means, with respect to a 
Medicare+Choice payment area for a month in a year, an amount equal to 
the greater of the following (but in no case less than \1/12\ of the 
rate computed under subsection (c)(1), without regard to subparagraph 
(A), for the year):
            ``(1) Based on 100 percent of fee-for-service costs in the 
        area.--An amount equal to \1/12\ of 100 percent (for 2005 
        through 2007, or 95 percent for 2008 and years thereafter) of 
        the adjusted average per capita cost for the year involved, 
        determined under section 1876(a)(4) for the Medicare+Choice 
        payment area, for the area and the year involved, for services 
        covered under parts A and B for individuals entitled to 
        benefits under part A and enrolled under part B who are not 
        enrolled in a Medicare+Choice plan under this part for the 
        year, and adjusted to exclude from such cost the amount the 
        Medicare Benefits Administrator estimates is payable for costs 
        described in subclauses (I) and (II) of subsection (c)(3)(C)(i) 
        for the year involved and also adjusted in the manner described 
        in subsection (c)(1)(D)(ii) (relating to inclusion of costs of 
        VA and DOD military facility services to medicare-eligible 
        beneficiaries).
            ``(2) Minimum monthly amount.--The minimum amount specified 
        in this paragraph is the amount specified in subsection 
        (c)(1)(B)(iv) for the year involved.''.
    (c) Payment of Plans Based on Bid Amounts.--
            (1) In general.--Section 1853(a)(1)(A) (42 U.S.C. 1395w-23) 
        is amended by striking ``in an amount'' and all that follows 
        and inserting the following: ``in an amount determined as 
        follows:
                            ``(i) Payment before 2005.--For years 
                        before 2005, the payment amount shall be equal 
                        to \1/12\ of the annual Medicare+Choice 
                        capitation rate (as calculated under subsection 
                        (c)) with respect to that individual for that 
                        area, reduced by the amount of any reduction 
                        elected under section 1854(f)(1)(E) and 
                        adjusted under clause (iii).
                            ``(ii) Payment for statutory non-drug 
                        benefits beginning with 2005.--For years 
                        beginning with 2005--
                                    ``(I) Plans with bids below 
                                benchmark.--In the case of a plan for 
                                which there are average per capita 
                                monthly savings described in section 
                                1854(b)(3)(C), the payment under this 
                                subsection is equal to the unadjusted 
                                non-drug monthly bid amount, adjusted 
                                under clause (iii), plus the amount of 
                                the monthly rebate computed under 
                                section 1854(b)(1)(C)(i) for that plan 
                                and year.
                                    ``(II) Plans with bids at or above 
                                benchmark.--In the case of a plan for 
                                which there are no average per capita 
                                monthly savings described in section 
                                1854(b)(3)(C), the payment amount under 
                                this subsection is equal to the fee-
                                for-service area-specific non-drug 
                                benchmark amount, adjusted under clause 
                                (iii).
                            ``(iii) Demographic adjustment, including 
                        adjustment for health status.--The 
                        Administrator shall adjust the payment amount 
                        under clause (i), the unadjusted non-drug 
                        monthly bid amount under clause (ii)(I), and 
                        the fee-for-service area-specific non-drug 
                        benchmark amount under clause (ii)(II) for such 
                        risk factors as age, disability status, gender, 
                        institutional status, and such other factors as 
                        the Administrator determines to be appropriate, 
                        including adjustment for health status under 
                        paragraph (3), so as to ensure actuarial 
                        equivalence. The Administrator may add to, 
                        modify, or substitute for such adjustment 
                        factors if such changes will improve the 
                        determination of actuarial equivalence.
                            ``(iv) Reference to subsidy payment for 
                        statutory drug benefits.--In the case in which 
                        an enrollee is enrolled under part D, the 
                        Medicare+Choice organization also is entitled 
                        to a subsidy payment amount under section 
                        1860H.''.
    (d) Conforming Amendments.--
            (1) Protection against beneficiary selection.--Section 
        1852(b)(1)(A) (42 U.S.C. 1395w-22(b)(1)(A)) is amended by 
        adding at the end the following: ``The Administrator shall not 
        approve a plan of an organization if the Administrator 
        determines that the benefits are designed to substantially 
        discourage enrollment by certain Medicare+Choice eligible 
        individuals with the organization.''.
            (2) Conforming amendment to premium terminology.--
        Subparagraphs (A) and (B) of section 1854(b)(2) (42 U.S.C. 
        1395w-24(b)(2)) are amended to read as follows:
                    ``(A) Medicare+Choice monthly basic beneficiary 
                premium.--The term `Medicare+Choice monthly basic 
                beneficiary premium' means, with respect to a 
                Medicare+Choice plan--
                            ``(i) described in section 
                        1853(a)(1)(A)(ii)(I) (relating to plans 
                        providing rebates), zero; or
                            ``(ii) described in section 
                        1853(a)(1)(A)(ii)(II), the amount (if any) by 
                        which the unadjusted non-drug monthly bid 
                        amount exceeds the fee-for-service area-
                        specific non-drug benchmark amount.
                    ``(B) Medicare+Choice monthly supplemental 
                beneficiary premium.--The term `Medicare+Choice monthly 
                supplemental beneficiary premium' means, with respect 
                to a Medicare+Choice plan, the portion of the aggregate 
                monthly bid amount submitted under clause (i) of 
                subsection (a)(6)(A) for the year that is attributable 
                under such section to the provision of nonstatutory 
                benefits.''.
            (3) Requirement for uniform bid amounts.--Section 1854(c) 
        (42 U.S.C. 1395w-24(c)) is amended to read as follows:
    ``(c) Uniform Bid Amounts.--The Medicare+Choice monthly bid amount 
submitted under subsection (a)(6) of a Medicare+Choice organization 
under this part may not vary among individuals enrolled in the plan.''.
            (4) Permitting beneficiary rebates.--
                    (A) Section 1851(h)(4)(A) (42 U.S.C. 1395w-
                21(h)(4)(A)) is amended by inserting ``except as 
                provided under section 1854(b)(1)(C)'' after ``or 
                otherwise''.
                    (B) Section 1854(d) (42 U.S.C. 1395w-24(d)) is 
                amended by inserting ``, except as provided under 
                subsection (b)(1)(C),'' after ``and may not provide''.
    (e) Effective Date.--The amendments made by this section shall 
apply to payments and premiums for months beginning with January 2005.

SEC. 212. DEMONSTRATION PROGRAM FOR COMPETITIVE-DEMONSTRATION AREAS.

    (a) Identification of Competitive-Demonstration Areas for 
Demonstration Program; Computation of Choice Non-Drug Benchmarks.--
Section 1853, as amended by section 211(b)(2), is amended by adding at 
the end the following new subsection:
    ``(k) Establishment of Competitive Demonstration Program.--
            ``(1) Designation of competitive-demonstration areas as 
        part of program.--
                    ``(A) In general.--For purposes of this part, the 
                Administrator shall establish a demonstration program 
                under which the Administrator designates 
                Medicare+Choice areas as competitive-demonstration 
                areas consistent with the following limitations:
                            ``(i) Limitation on number of areas that 
                        may be designated.--The Administrator may not 
                        designate more than 4 areas as competitive-
                        demonstration areas.
                            ``(ii) Limitation on period of designation 
                        of any area.--The Administrator may not 
                        designate any area as a competitive-
                        demonstration area for a period of more than 2 
                        years.
                The Administrator has the discretion to decide whether 
                or not to designate as a competitive-demonstration area 
                an area that qualifies for such designation.
                    ``(B) Qualifications for designation.--For purposes 
                of this title, a Medicare+Choice area (which is a 
                metropolitan statistical area or other area with a 
                substantial number of Medicare+Choice enrollees) may 
                not be designated as a `competitive-demonstration area' 
                for a 2-year period beginning with a year unless the 
                Administrator determines, by such date before the 
                beginning of the year as the Administrator determines 
                appropriate, that--
                            ``(i) there will be offered during the open 
                        enrollment period under this part before the 
                        beginning of the year at least 2 
                        Medicare+Choice plans (in addition to the fee-
                        for-service program under parts A and B), each 
                        offered by a different Medicare+Choice 
                        organization; and
                            ``(ii) during March of the previous year at 
                        least 50 percent of the number of 
                        Medicare+Choice eligible individuals who reside 
                        in the area were enrolled in a Medicare+Choice 
                        plan.
            ``(2) Choice non-drug benchmark amount.--For purposes of 
        this part, the term `choice non-drug benchmark amount' means, 
        with respect to a Medicare+Choice payment area for a month in a 
        year, the sum of the 2 components described in paragraph (3) 
        for the area and year. The Administrator shall compute such 
        benchmark amount for each competitive-demonstration area before 
        the beginning of each annual, coordinated election period under 
        section 1851(e)(3)(B) for each year (beginning with 2005) in 
        which it is designated as such an area.
            ``(3) 2 components.--For purposes of paragraph (2), the 2 
        components described in this paragraph for an area and a year 
        are the following:
                    ``(A) Fee-for-service component weighted by 
                national fee-for-service market share.--The product of 
                the following:
                            ``(i) National fee-for-service market 
                        share.--The national fee-for-service market 
                        share percentage (determined under paragraph 
                        (5)) for the year.
                            ``(ii) Fee-for-service area-specific non-
                        drug bid.--The fee-for-service area-specific 
                        non-drug bid (as defined in paragraph (6)) for 
                        the area and year.
                    ``(B) M+C component weighted by national 
                medicare+choice market share.--The product of the 
                following:
                            ``(i) National medicare+choice market 
                        share.--1 minus the national fee-for-service 
                        market share percentage for the year.
                            ``(ii) Weighted average of plan bids in 
                        area.--The weighted average of the plan bids 
                        for the area and year (as determined under 
                        paragraph (4)(A)).
            ``(4) Determination of weighted average bids for an area.--
                    ``(A) In general.--For purposes of paragraph 
                (3)(B)(ii), the weighted average of plan bids for an 
                area and a year is the sum of the following products 
                for Medicare+Choice plans described in subparagraph (C) 
                in the area and year:
                            ``(i) Proportion of each plan's enrollees 
                        in the area.--The number of individuals 
                        described in subparagraph (B), divided by the 
                        total number of such individuals for all 
                        Medicare+Choice plans described in subparagraph 
                        (C) for that area and year.
                            ``(ii) Monthly non-drug bid amount.--The 
                        unadjusted non-drug monthly bid amount.
                    ``(B) Counting of individuals.--The Administrator 
                shall count, for each Medicare+Choice plan described in 
                subparagraph (C) for an area and year, the number of 
                individuals who reside in the area and who were 
                enrolled under such plan under this part during March 
                of the previous year.
                    ``(C) Exclusion of plans not offered in previous 
                year.--For an area and year, the Medicare+Choice plans 
                described in this subparagraph are plans that are 
                offered in the area and year and were offered in the 
                area in March of the previous year.
            ``(5) Computation of national fee-for-service market share 
        percentage.--The Administrator shall determine, for a year, the 
        proportion (in this subsection referred to as the `national 
        fee-for-service market share percentage') of Medicare+Choice 
        eligible individuals who during March of the previous year were 
        not enrolled in a Medicare+Choice plan.
            ``(6) Fee-for-service area-specific non-drug bid.--For 
        purposes of this part, the term `fee-for-service area-specific 
        non-drug bid' means, for an area and year, the amount described 
        in section 1853(j)(1) for the area and year, except that any 
        reference to a percent of less than 100 percent shall be deemed 
        a reference to 100 percent.''.
    (b) Application of Choice Non-Drug Benchmark in Competitive-
Demonstration Areas.--
            (1) In general.--Section 1854 is amended--
                    (A) in subsection (b)(1)(C)(i), as added by section 
                211(b)(1)(A), by striking ``(i) Requirement.--The'' and 
                inserting ``(i) Requirement for non-competitive-
                demonstration areas.--In the case of a Medicare+Choice 
                payment area that is not a competitive-demonstration 
                area designated under section 1853(k)(1), the'';
                    (B) in subsection (b)(1)(C), as so added, by 
                inserting after clause (i) the following new clause:
                            ``(ii) Requirement for competitive-
                        demonstration areas.--In the case of a 
                        Medicare+Choice payment area that is designated 
                        as a competitive-demonstration area under 
                        section 1853(k)(1), if there are average per 
                        capita monthly savings described in paragraph 
                        (4) for a Medicare+Choice plan and year, the 
                        Medicare+Choice plan shall provide to the 
                        enrollee a monthly rebate equal to 75 percent 
                        of such savings.'';
                    (C) by adding at the end of subsection (b), as 
                amended by section 211(b)(1), the following new 
                paragraph:
            ``(4) Computation of average per capita monthly savings for 
        competitive-demonstration areas.--For purposes of paragraph 
        (1)(C)(ii), the average per capita monthly savings referred to 
        in such paragraph for a Medicare+Choice plan and year shall be 
        computed in the same manner as the average per capita monthly 
        savings is computed under paragraph (3) except that the 
        reference to the fee-for-service area-specific non-drug 
        benchmark amount in paragraph (3)(B)(i) (or to the benchmark 
        amount as adjusted under paragraph (3)(C)(i)) is deemed to be a 
        reference to the choice non-drug benchmark amount (or such 
        amount as adjusted in the manner described in paragraph 
        (3)(B)(i)).''; and
                    (D) in subsection (d), as amended by section 
                211(d)(4), by inserting ``and subsection (b)(1)(D)'' 
                after ``subsection (b)(1)(C)''.
            (2) Conforming amendments.--
                    (A) Payment of plans.--Section 1853(a)(1)(A)(ii), 
                as amended by section 211(c)(1), is amended--
                            (i) in subclause (I), by inserting ``(or, 
                        in the case of a competitive-demonstration 
                        area, the choice non-drug benchmark amount)'' 
                        after ``unadjusted non-drug monthly bid 
                        amount''; and
                            (ii) in subclauses (I) and (II), by 
                        inserting ``(or, in the case of a competitive-
                        demonstration area, described in section 
                        1854(b)(4))'' after ``section 1854(b)(3)(C)''.
                    (B) Definition of monthly basic premium.--Section 
                1854(b)(2)(A)(ii), as amended by section 211(d)(2), is 
                amended by inserting ``(or, in the case of a 
                competitive-demonstration area, the choice non-drug 
                benchmark amount)'' after ``benchmark amount''.
    (c) Premium Adjustment.--Section 1839 (42 U.S.C. 1395r) is amended 
by adding at the end the following new subsection:
    ``(h)(1) In the case of an individual who resides in a competitive-
demonstration area designated under section 1851(k)(1) and who is not 
enrolled in a Medicare+Choice plan under part C, the monthly premium 
otherwise applied under this part (determined without regard to 
subsections (b) and (f) or any adjustment under this subsection) shall 
be adjusted as follows: If the fee-for-service area-specific non-drug 
bid (as defined in section 1853(k)(6)) for the Medicare+Choice area in 
which the individual resides for a month--
            ``(A) does not exceed the choice non-drug benchmark (as 
        determined under section 1853(k)(2)) for such area, the amount 
        of the premium for the individual for the month shall be 
        reduced by an amount equal to 75 percent of the amount by which 
        such benchmark exceeds such fee-for-service bid; or
            ``(B) exceeds such choice non-drug benchmark, the amount of 
        the premium for the individual for the month shall be adjusted 
        to ensure that--
                    ``(i) the sum of the amount of the adjusted premium 
                and the choice non-drug benchmark for the area, is 
                equal to
                    ``(ii) the sum of the unadjusted premium plus 
                amount of the fee-for-service area-specific non-drug 
                bid for the area.
    ``(2) Nothing in this subsection shall be construed as preventing a 
reduction under paragraph (1)(A) in the premium otherwise applicable 
under this part to zero or from requiring the provision of a rebate to 
the extent such premium would otherwise be required to be less than 
zero.
    ``(3) The adjustment in the premium under this subsection shall be 
effected in such manner as the Medicare Benefits Administrator 
determines appropriate.
    ``(4) In order to carry out this subsection (insofar as it is 
effected through the manner of collection of premiums under 1840(a)), 
the Medicare Benefits Administrator shall transmit to the Commissioner 
of Social Security--
            ``(A) at the beginning of each year, the name, social 
        security account number, and the amount of the adjustment (if 
        any) under this subsection for each individual enrolled under 
        this part for each month during the year; and
            ``(B) periodically throughout the year, information to 
        update the information previously transmitted under this 
        paragraph for the year.''.
    (d) Conforming Amendment.--Section 1844(c) (42 U.S.C. 1395w(c)) is 
amended by inserting ``and without regard to any premium adjustment 
effected under section 1839(h)'' before the period at the end.
    (e) Report on Demonstration Program.--Not later than 6 months after 
the date on which the designation of the 4th competitive-demonstration 
area under section 1851(k)(1) of the Social Security Act ends, the 
Medicare Payment Advisory Commission shall submit to Congress a report 
on the impact of the demonstration program under the amendments made by 
this section, including such impact on premiums of medicare 
beneficiaries, savings to the medicare program, and on adverse 
selection.
    (f) Effective Date.--The amendments made by this section shall 
apply to payments and premiums for periods beginning on or after 
January 1, 2005.

SEC. 213. CONFORMING AMENDMENTS.

    (a) Conforming Amendments Relating to Bids.--
            (1) Section 1854 (42 U.S.C. 1395w-24) is amended--
                    (A) in the heading of subsection (a), by inserting 
                ``and Bid Amounts'' after ``Premiums''; and
                    (B) in subsection (a)(5)(A), by inserting 
                ``paragraphs (2), (3), and (4) of'' after ``filed 
                under''.
    (b) Additional Conforming Amendments.--
            (1) Annual determination and announcement of certain 
        factors.--Section 1853(b) (42 U.S.C. 1395w-23(b)) is amended--
                    (A) in paragraph (1), by striking ``the respective 
                calendar year'' and all that follows and inserting the 
                following: ``the calendar year concerned with respect 
                to each Medicare+Choice payment area, the following:
                    ``(A) Pre-competition information.--For years 
                before 2005, the following:
                            ``(i) Medicare+choice capitation rates.--
                        The annual Medicare+Choice capitation rate for 
                        each Medicare+Choice payment area for the year.
                            ``(ii) Adjustment factors.--The risk and 
                        other factors to be used in adjusting such 
                        rates under subsection (a)(1)(A) for payments 
                        for months in that year.
                    ``(B) Competition information.--For years beginning 
                with 2005, the following:
                            ``(i) Benchmarks.--The fee-for-service 
                        area-specific non-drug benchmark under section 
                        1853(j) and, if applicable, the choice non-drug 
                        benchmark under section 1853(k)(2), for the 
                        year involved and, if applicable, the national 
                        fee-for-service market share percentage.
                            ``(ii) Adjustment factors.--The adjustment 
                        factors applied under section 
                        1853(a)(1)(A)(iii) (relating to demographic 
                        adjustment), section 1853(a)(1)(B) (relating to 
                        adjustment for end-stage renal disease), and 
                        section 1853(a)(3) (relating to health status 
                        adjustment).
                            ``(iii) Projected fee-for-service bid.--In 
                        the case of a competitive area, the projected 
                        fee-for-service area-specific non-drug bid (as 
                        determined under subsection (k)(6)) for the 
                        area.
                            ``(iv) Individuals.--The number of 
                        individuals counted under subsection (k)(4)(B) 
                        and enrolled in each Medicare+Choice plan in 
                        the area.''; and
                    (B) in paragraph (3), by striking ``in sufficient 
                detail'' and all that follows up to the period at the 
                end.
            (2) Repeal of provisions relating to adjusted community 
        rate (acr).--
                    (A) In general.--Subsections (e) and (f) of section 
                1854 (42 U.S.C. 1395w-24) are repealed.
                    (B) Conforming amendment.--Section 1839(a)(2) (42 
                U.S.C. 1395r(a)(2)) is amended by striking ``, and to 
                reflect'' and all that follows and inserting a period.
            (3) Prospective implementation of national coverage 
        determinations.--Section 1852(a)(5) (42 U.S.C. 1395w-22(a)(5)) 
        is amended to read as follows:
            ``(5) Prospective implementation of national coverage 
        determinations.--The Secretary shall only implement a national 
        coverage determination that will result in a significant change 
        in the costs to a Medicare+Choice organization in a prospective 
        manner that applies to announcements made under section 1853(b) 
        after the date of the implementation of the determination.''.
            (4) Permitting geographic adjustment to consolidate 
        multiple medicare+choice payment areas in a state into a single 
        statewide medicare+choice payment area.--Section 1853(d)(3) (42 
        U.S.C. 1395w-23(e)(3)) is amended--
                    (A) by amending clause (i) of subparagraph (A) to 
                read as follows:
                            ``(i) to a single statewide Medicare+Choice 
                        payment area,''; and
                    (B) by amending subparagraph (B) to read as 
                follows:
                    ``(B) Budget neutrality adjustment.--In the case of 
                a State requesting an adjustment under this paragraph, 
                the Medicare Benefits Administrator shall initially 
                (and annually thereafter) adjust the payment rates 
                otherwise established under this section for 
                Medicare+Choice payment areas in the State in a manner 
                so that the aggregate of the payments under this 
                section in the State shall not exceed the aggregate 
                payments that would have been made under this section 
                for Medicare+Choice payment areas in the State in the 
                absence of the adjustment under this paragraph.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to payments and premiums for periods beginning on or after 
January 1, 2005.

               TITLE III--RURAL HEALTH CARE IMPROVEMENTS

SEC. 301. REFERENCE TO FULL MARKET BASKET INCREASE FOR SOLE COMMUNITY 
              HOSPITALS.

    For provision eliminating any reduction from full market basket in 
the update for inpatient hospital services for sole community 
hospitals, see section 401.

SEC. 302. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR 
              RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 100 
              BEDS.

    (a) Blending of Payment Amounts.--
            (1) In general.--Section 1886(d)(5)(F) (42 U.S.C. 
        1395ww(d)(5)(F)) is amended by adding at the end the following 
        new clause:
    ``(xiv)(I) In the case of discharges in a fiscal year beginning on 
or after October 1, 2002, subject to subclause (II), there shall be 
substituted for the disproportionate share adjustment percentage 
otherwise determined under clause (iv) (other than subclause (I)) or 
under clause (viii), (x), (xi), (xii), or (xiii), the old blend 
proportion (specified under subclause (III)) of the disproportionate 
share adjustment percentage otherwise determined under the respective 
clause and 100 percent minus such old blend proportion of the 
disproportionate share adjustment percentage determined under clause 
(vii) (relating to large, urban hospitals).
    ``(II) Under subclause (I), the disproportionate share adjustment 
percentage shall not exceed 10 percent for a hospital that is not 
classified as a rural referral center under subparagraph (C).
    ``(III) For purposes of subclause (I), the old blend proportion for 
fiscal year 2003 is 80 percent, for each subsequent year (through 2006) 
is the old blend proportion under this subclause for the previous year 
minus 20 percentage points, and for each year beginning with 2007 is 0 
percent.''.
            (2) Conforming amendments.--Section 1886(d)(5)(F) (42 
        U.S.C. 1395ww(d)(5)(F)) is amended--
                    (A) in each of subclauses (II), (III), (IV), (V), 
                and (VI) of clause (iv), by inserting ``subject to 
                clause (xiv) and'' before ``for discharges occurring'';
                    (B) in clause (viii), by striking ``The formula'' 
                and inserting ``Subject to clause (xiv), the formula''; 
                and
                    (C) in each of clauses (x), (xi), (xii), and 
                (xiii), by striking ``For purposes'' and inserting 
                ``Subject to clause (xiv), for purposes''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to discharges occurring on or after October 1, 2002.

SEC. 303. 2-YEAR PHASED-IN INCREASE IN THE STANDARDIZED AMOUNT IN RURAL 
              AND SMALL URBAN AREAS TO ACHIEVE A SINGLE, UNIFORM 
              STANDARDIZED AMOUNT.

    Section 1886(d)(3)(A)(iv) (42 U.S.C. 1395ww(d)(3)(A)(iv)) is 
amended--
            (1) by striking ``(iv) For discharges'' and inserting 
        ``(iv)(I) Subject to the succeeding provisions of this clause, 
        for discharges''; and
            (2) by adding at the end the following new subclauses:
            ``(II) For discharges occurring during fiscal year 2003, 
        the average standardized amount for hospitals located other 
        than in a large urban area shall be increased by \1/2\ of the 
        difference between the average standardized amount determined 
        under subclause (I) for hospitals located in large urban areas 
        for such fiscal year and such amount determined (without regard 
        to this subclause) for other hospitals for such fiscal year.
            ``(III) For discharges occurring in a fiscal year beginning 
        with fiscal year 2004, the Secretary shall compute an average 
        standardized amount for hospitals located in any area within 
        the United States and within each region equal to the average 
        standardized amount computed for the previous fiscal year under 
        this subparagraph for hospitals located in a large urban area 
        (or, beginning with fiscal year 2005, for hospitals located in 
        any area) increased by the applicable percentage increase under 
        subsection (b)(3)(B)(i).''.

SEC. 304. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL MARKET 
              BASKET.

    (a) More Frequent Updates in Weights.--After revising the weights 
used in the hospital market basket under section 1886(b)(3)(B)(iii) of 
the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the 
most current data available, the Secretary shall establish a frequency 
for revising such weights in such market basket to reflect the most 
current data available more frequently than once every 5 years.
    (b) Report.--Not later than October 1, 2003, the Secretary shall 
submit a report to Congress on the frequency established under 
subsection (a), including an explanation of the reasons for, and 
options considered, in determining such frequency.

SEC. 305. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

    (a) Reinstatement of Periodic Interim Payment (PIP).--Section 
1815(e)(2) (42 U.S.C. 1395g(e)(2)) is amended--
            (1) by striking ``and'' at the end of subparagraph (C);
            (2) by adding ``and'' at the end of subparagraph (D); and
            (3) by inserting after subparagraph (D) the following new 
        subparagraph:
            ``(E) inpatient critical access hospital services;''.
    (b) Condition for Application of Special Physician Payment 
Adjustment.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) is amended by 
adding after and below subparagraph (B) the following:
        ``The Secretary may not require, as a condition for applying 
        subparagraph (B) with respect to a critical access hospital, 
        that each physician providing professional services in the 
        hospital must assign billing rights with respect to such 
        services, except that such subparagraph shall not apply to 
        those physicians who have not assigned such billing rights.''.
    (c) Flexibility in Bed Limitation for Hospitals.--Section 1820 (42 
U.S.C. 1395i-4) is amended--
            (1) in subsection (c)(2)(B)(iii), by inserting ``subject to 
        paragraph (3)'' after ``(iii) provides'';
            (2) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(3) Increase in maximum number of beds for hospitals with 
        strong seasonal census fluctuations.--
                    ``(A) In general.--Subject to subparagraph (C), in 
                the case of a hospital that demonstrates that it meets 
                the standards established under subparagraph (B) and 
                has not made the election described in subsection 
                (f)(2)(A), the bed limitations otherwise applicable 
                under paragraph (2)(B)(iii) and subsection (f) shall be 
                increased by 5 beds.
                    ``(B) Standards.--The Secretary shall specify 
                standards for determining whether a critical access 
                hospital has sufficiently strong seasonal variations in 
                patient admissions to justify the increase in bed 
                limitation provided under subparagraph (A).''; and
            (3) in subsection (f)--
                    (A) by inserting ``(1)'' after ``(f)''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(2)(A) A hospital may elect to treat the reference in paragraph 
(1) to `15 beds' as a reference to `25 beds', but only if no more than 
10 beds in the hospital are at any time used for non-acute care 
services. A hospital that makes such an election is not eligible for 
the increase provided under subsection (c)(3)(A).
    ``(B) The limitations in numbers of beds under the first sentence 
of paragraph (1) are subject to adjustment under subsection (c)(3).''.
    (d) 5-Year Extension of the Authorization for Appropriations for 
Grant Program.--Section 1820(j) (42 U.S.C. 1395i-4(j)) is amended by 
striking ``through 2002'' and inserting ``through 2007''.
    (e) Prohibition of Retroactive Recoupment.--The Secretary shall not 
recoup (or otherwise seek to recover) overpayments made for outpatient 
critical access hospital services under part B of title XVIII of the 
Social Security Act, for services furnished in cost reporting periods 
that began before October 1, 2002, insofar as such overpayments are 
attributable to payment being based on 80 percent of reasonable costs 
(instead of 100 percent of reasonable costs minus 20 percent of 
charges).
    (f) Effective Dates.--
            (1) Reinstatement of pip.--The amendments made by 
        subsection (a) shall apply to payments made on or after January 
        1, 2003.
            (2) Physician payment adjustment condition.--The amendment 
        made by subsection (b) shall be effective as if included in the 
        enactment of section 403(d) of the Medicare, Medicaid, and 
        SCHIP Balanced Budget Refinement Act of 1999 (113 Stat. 1501A-
        371).
            (3) Flexibility in bed limitation.--The amendments made by 
        subsection (c) shall apply to designations made on or after 
        January 1, 2003, but shall not apply to critical access 
        hospitals that were designated as of such date.

SEC. 306. EXTENSION OF TEMPORARY INCREASE FOR HOME HEALTH SERVICES 
              FURNISHED IN A RURAL AREA.

    (a) In General.--Section 508(a) BIPA (114 Stat. 2763A-533) is 
amended--
            (1) by striking ``24-Month Increase Beginning April 1, 
        2001'' and inserting ``In General''; and
            (2) by striking ``April 1, 2003'' and inserting ``January 
        1, 2005''.
    (b) Conforming Amendment.--Section 547(c)(2) of BIPA (114 Stat. 
2763A-553) is amended by striking ``the period beginning on April 1, 
2001, and ending on September 30, 2002,'' and inserting ``a period 
under such section''.

SEC. 307. REFERENCE TO 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE 
              FURNISHED IN A FRONTIER AREA AND RURAL HOSPICE 
              DEMONSTRATION PROJECT.

    For--
            (1) provision of 10 percent increase in payment for hospice 
        care furnished in a frontier area, see section 422; and
            (2) provision of a rural hospice demonstration project, see 
        section 423.

SEC. 308. REFERENCE TO PRIORITY FOR HOSPITALS LOCATED IN RURAL OR SMALL 
              URBAN AREAS IN REDISTRIBUTION OF UNUSED GRADUATE MEDICAL 
              EDUCATION RESIDENCIES.

    For provision providing priority for hospitals located in rural or 
small urban areas in redistribution of unused graduate medical 
education residencies, see section 612.

SEC. 309. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS FOR 
              PHYSICIANS' SERVICES.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study of differences in payment amounts under the physician 
fee schedule under section 1848 of the Social Security Act (42 U.S.C. 
1395w-4) for physicians' services in different geographic areas. Such 
study shall include--
            (1) an assessment of the validity of the geographic 
        adjustment factors used for each component of the fee schedule;
            (2) an evaluation of the measures used for such adjustment, 
        including the frequency of revisions; and
            (3) an evaluation of the methods used to determine 
        professional liability insurance costs used in computing the 
        malpractice component, including a review of increases in 
        professional liability insurance premiums and variation in such 
        increases by State and physician specialty and methods used to 
        update the geographic cost of practice index and relative 
        weights for the malpractice component.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Comptroller General shall submit to Congress a report 
on the study conducted under subsection (a). The report shall include 
recommendations regarding the use of more current data in computing 
geographic cost of practice indices as well as the use of data directly 
representative of physicians' costs (rather than proxy measures of such 
costs).

SEC. 310. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE EFFORTS THAT 
              BENEFIT MEDICALLY UNDERSERVED POPULATIONS.

    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7(b)(3)), as 
amended by section 101(b)(2), is amended--
            (1) in subparagraph (F), by striking ``and'' after the 
        semicolon at the end;
            (2) in subparagraph (G), by striking the period at the end 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
                    ``(H) any remuneration between a public or 
                nonprofit private health center entity described under 
                clause (i) or (ii) of section 1905(l)(2)(B) and any 
                individual or entity providing goods, items, services, 
                donations or loans, or a combination thereof, to such 
                health center entity pursuant to a contract, lease, 
                grant, loan, or other agreement, if such agreement 
                contributes to the ability of the health center entity 
                to maintain or increase the availability, or enhance 
                the quality, of services provided to a medically 
                underserved population served by the health center 
                entity.''.
    (b) Rulemaking for Exception for Health Center Entity 
Arrangements.--
            (1) Establishment.--
                    (A) In general.--The Secretary of Health and Human 
                Services (in this subsection referred to as the 
                ``Secretary'') shall establish, on an expedited basis, 
                standards relating to the exception described in 
                section 1128B(b)(3)(H) of the Social Security Act, as 
                added by subsection (a), for health center entity 
                arrangements to the antikickback penalties.
                    (B) Factors to consider.--The Secretary shall 
                consider the following factors, among others, in 
                establishing standards relating to the exception for 
                health center entity arrangements under subparagraph 
                (A):
                            (i) Whether the arrangement between the 
                        health center entity and the other party 
                        results in savings of Federal grant funds or 
                        increased revenues to the health center entity.
                            (ii) Whether the arrangement between the 
                        health center entity and the other party 
                        restricts or limits a patient's freedom of 
                        choice.
                            (iii) Whether the arrangement between the 
                        health center entity and the other party 
                        protects a health care professional's 
                        independent medical judgment regarding 
                        medically appropriate treatment.
                The Secretary may also include other standards and 
                criteria that are consistent with the intent of 
                Congress in enacting the exception established under 
                this section.
            (2) Interim final effect.--No later than 180 days after the 
        date of enactment of this Act, the Secretary shall publish a 
        rule in the Federal Register consistent with the factors under 
        paragraph (1)(B). Such rule shall be effective and final 
        immediately on an interim basis, subject to such change and 
        revision, after public notice and opportunity (for a period of 
        not more than 60 days) for public comment, as is consistent 
        with this subsection.

SEC. 311. RELIEF FOR CERTAIN NON-TEACHING HOSPITALS.

    (a) In General.--In the case of a non-teaching hospital that meets 
the condition of subsection (b), in each of fiscal years 2003, 2004, 
and 2005 the amount of payment made to the hospital under section 
1886(d) of the Social Security Act for discharges occurring during such 
fiscal year only shall be increased as though the applicable percentage 
increase (otherwise applicable to discharges occurring during such 
fiscal year under section 1886(b)(3)(B)(i) of the Social Security Act 
(42 U.S.C. 1395ww(b)(3)(B)(i)) had been increased by 5 percentage 
points. The previous sentence shall be applied for each such fiscal 
year separately without regard to its application in a previous fiscal 
year and shall not affect payment for discharges for any hospital 
occurring during a fiscal year after fiscal year 2005.
    (b) Condition.--A non-teaching hospital meets the condition of this 
subsection if--
            (1) it is located in a rural area and the amount of the 
        aggregate payments under subsection (d) of section 1886 of the 
        Social Security Act for hospitals located in rural areas in the 
        State for their cost reporting periods beginning during fiscal 
        year 1999 is less than the aggregate allowable operating costs 
        of inpatient hospital services (as defined in subsection (a)(4) 
        of such section) for all subsection (d) hospitals in such areas 
        in such State with respect to such cost reporting periods; or
            (2) it is located in an urban area and the amount of the 
        aggregate payments under subsection (d) of such section for 
        hospitals located in urban areas in the State for their cost 
        reporting periods beginning during fiscal year 1999 is less 
        than 103 percent of the aggregate allowable operating costs of 
        inpatient hospital services (as defined in subsection (a)(4) of 
        such section) for all subsection (d) hospitals in such areas in 
        such State with respect to such cost reporting periods.
The amounts under paragraphs (1) and (2) shall be determined by the 
Secretary of Health and Human Services based on data of the Medicare 
Payment Advisory Commission.
    (c) Definitions.--For purposes of this section:
            (1) Non-teaching hospital.--The term ``non-teaching 
        hospital'' means, for a cost reporting period, a subsection (d) 
        hospital (as defined in subsection (d)(1)(B) of section 1886 of 
        the Social Security Act, 42 U.S.C. 1395ww)) that is not 
        receiving any additional payment under subsection (d)(5)(B) of 
        such section or a payment under subsection (h) of such section 
        for discharges occurring during the period. A subsection (d) 
        hospital that receives additional payments under subsection 
        (d)(5)(B) or (h) of such section shall, for purposes of this 
        section, also be treated as a non-teaching hospital unless a 
        chairman of a department in the medical school with which the 
        hospital is affiliated is serving or has been appointed as a 
        clinical chief of service in the hospital.
            (2) Rural; urban.--The terms ``rural'' and ``urban'' have 
        the meanings given such terms for purposes of section 1886(d) 
        of the Social Security Act (42 U.S.C. 1395ww(d)).

                TITLE IV--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

SEC. 401. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

    Subclause (XVIII) of section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended to read as follows:
            ``(XVIII) for fiscal year 2003, the market basket 
        percentage increase for sole community hospitals and such 
        increase minus 0.25 percentage points for other hospitals, 
        and''.

SEC. 402. 2-YEAR INCREASE IN LEVEL OF ADJUSTMENT FOR INDIRECT COSTS OF 
              MEDICAL EDUCATION (IME).

    Section 1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is 
amended--
            (1) in subclause (VI) by striking ``and'' at the end;
            (2) by redesignating subclause (VII) as subclause (IX);
            (3) in subclause (IX) as so redesignated, by striking 
        ``2002'' and inserting ``2004''; and
            (4) by inserting after subclause (VI) the following new 
        subclause:
                    ``(VII) during fiscal year 2003, `c' is equal to 
                1.47;
                    ``(VIII) during fiscal year 2004, `c' is equal to 
                1.45; and''.

SEC. 403. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
              HOSPITAL PPS.

    (a) Improving Timeliness of Data Collection.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)) is amended by adding at the end the 
following new clause:
    ``(vii) Under the mechanism under this subparagraph, the Secretary 
shall provide for the addition of new diagnosis and procedure codes in 
April 1 of each year, but the addition of such codes shall not require 
the Secretary to adjust the payment (or diagnosis-related group 
classification) under this subsection until the fiscal year that begins 
after such date.''.
    (b) Eligibility Standard.--
            (1) Minimum period for recognition of new technologies.--
        Section 1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)) is 
        amended--
                    (A) by inserting ``(I)'' after ``(vi)''; and
                    (B) by adding at the end the following new 
                subclause:
    ``(II) Under such criteria, a service or technology shall not be 
denied treatment as a new service or technology on the basis of the 
period of time in which the service or technology has been in use if 
such period ends before the end of the 2-to-3-year period that begins 
on the effective date of implementation of a code under ICD-9-CM (or a 
successor coding methodology) that enables the identification of a 
significant sample of specific discharges in which the service or 
technology has been used.''.
            (2) Adjustment of threshold.--Section 1886(d)(5)(K)(ii)(I) 
        (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) is amended by inserting 
        ``(applying a threshold specified by the Secretary that is the 
        lesser of 50 percent of the national average standardized 
        amount for operating costs of inpatient hospital services for 
        all hospitals and all diagnosis-related groups or one standard 
        deviation for the diagnosis-related group involved)'' after 
        ``is inadequate''.
            (3) Criterion for substantial improvement.--Section 
        1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)), as amended 
        by paragraph (1), is further amended by adding at the end the 
        following subclause:
    ``(III) The Secretary shall by regulation provide for further 
clarification of the criteria applied to determine whether a new 
service or technology represents an advance in medical technology that 
substantially improves the diagnosis or treatment of beneficiaries. 
Under such criteria, in determining whether a new service or technology 
represents an advance in medical technology that substantially improves 
the diagnosis or treatment of beneficiaries, the Secretary shall deem a 
service or technology as meeting such requirement if the service or 
technology is a drug or biological that is designated under section 506 
or 526 of the Federal Food, Drug, and Cosmetic Act, approved under 
section 314.510 or 601.41 of title 21, Code of Federal Regulations, or 
designated for priority review when the marketing application for such 
drug or biological was filed or is a medical device for which an 
exemption has been granted under section 520(m) of such Act, or for 
which priority review has been provided under section 515(d)(5) of such 
Act.''.
            (4) Process for public input.--Section 1886(d)(5)(K) (42 
        U.S.C. 1395ww(d)(5)(K)), as amended by paragraph (1), is 
        amended--
                    (A) in clause (i), by adding at the end the 
                following: ``Such mechanism shall be modified to meet 
                the requirements of clause (viii).''; and
                    (B) by adding at the end the following new clause:
    ``(viii) The mechanism established pursuant to clause (i) shall be 
adjusted to provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology not described in 
the second sentence of clause (vi)(III) represents an advance in 
medical technology that substantially improves the diagnosis or 
treatment of beneficiaries as follows:
            ``(I) The Secretary shall make public and periodically 
        update a list of all the services and technologies for which an 
        application for additional payment under this subparagraph is 
        pending.
            ``(II) The Secretary shall accept comments, 
        recommendations, and data from the public regarding whether the 
        service or technology represents a substantial improvement.
            ``(III) The Secretary shall provide for a meeting at which 
        organizations representing hospitals, physicians, medicare 
        beneficiaries, manufacturers, and any other interested party 
        may present comments, recommendations, and data to the clinical 
        staff of the Centers for Medicare & Medicaid Services before 
        publication of a notice of proposed rulemaking regarding 
        whether service or technology represents a substantial 
        improvement.''.
    (c) Preference for Use of DRG Adjustment.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)) is further amended by adding at the end the 
following new clause:
    ``(ix) Before establishing any add-on payment under this 
subparagraph with respect to a new technology, the Secretary shall seek 
to identify one or more diagnosis-related groups associated with such 
technology, based on similar clinical or anatomical characteristics and 
the cost of the technology. Within such groups the Secretary shall 
assign an eligible new technology into a diagnosis-related group where 
the average costs of care most closely approximate the costs of care of 
using the new technology. In such case, no add-on payment under this 
subparagraph shall be made with respect to such new technology and this 
clause shall not affect the application of paragraph (4)(C)(iii).''.
    (d) Improvement in Payment for New Technology.--Section 
1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is amended 
by inserting after ``the estimated average cost of such service or 
technology'' the following: ``(based on the marginal rate applied to 
costs under subparagraph (A))''.
    (e) Effective Date.--
            (1) In general.--The Secretary shall implement the 
        amendments made by this section so that they apply to 
        classification for fiscal years beginning with fiscal year 
        2004.
            (2) Reconsiderations of applications for fiscal year 2003 
        that are denied.--In the case of an application for a 
        classification of a medical service or technology as a new 
        medical service or technology under section 1886(d)(5)(K) of 
        the Social Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was 
        filed for fiscal year 2003 and that is denied--
                    (A) the Secretary shall automatically reconsider 
                the application as an application for fiscal year 2004 
                under the amendments made by this section; and
                    (B) the maximum time period otherwise permitted for 
                such classification of the service or technology shall 
                be extended by 12 months.

SEC. 404. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

    Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (i), by striking ``for discharges 
                beginning on or after October 1, 1997, 50 percent (and 
                for discharges between October 1, 1987, and September 
                30, 1997, 75 percent)'' and inserting ``the applicable 
                Puerto Rico percentage (specified in subparagraph 
                (E))''; and
                    (B) in clause (ii), by striking ``for discharges 
                beginning in a fiscal year beginning on or after 
                October 1, 1997, 50 percent (and for discharges between 
                October 1, 1987, and September 30, 1997, 25 percent)'' 
                and inserting ``the applicable Federal percentage 
                (specified in subparagraph (E))''; and
            (2) by adding at the end the following new subparagraph:
    ``(E) For purposes of subparagraph (A), for discharges occurring--
            ``(i) between October 1, 1987, and September 30, 1997, the 
        applicable Puerto Rico percentage is 75 percent and the 
        applicable Federal percentage is 25 percent;
            ``(ii) on or after October 1, 1997, and before October 1, 
        2003, the applicable Puerto Rico percentage is 50 percent and 
        the applicable Federal percentage is 50 percent;
            ``(iii) during fiscal year 2004, the applicable Puerto Rico 
        percentage is 45 percent and the applicable Federal percentage 
        is 55 percent;
            ``(iv) during fiscal year 2005, the applicable Puerto Rico 
        percentage is 40 percent and the applicable Federal percentage 
        is 60 percent;
            ``(v) during fiscal year 2006, the applicable Puerto Rico 
        percentage is 35 percent and the applicable Federal percentage 
        is 65 percent;
            ``(vi) during fiscal year 2007, the applicable Puerto Rico 
        percentage is 30 percent and the applicable Federal percentage 
        is 70 percent; and
            ``(vii) on or after October 1, 2007, the applicable Puerto 
        Rico percentage is 25 percent and the applicable Federal 
        percentage is 75 percent.''.

SEC. 405. REFERENCE TO PROVISION RELATING TO ENHANCED DISPROPORTIONATE 
              SHARE HOSPITAL (DSH) PAYMENTS FOR RURAL HOSPITALS AND 
              URBAN HOSPITALS WITH FEWER THAN 100 BEDS.

    For provision enhancing disproportionate share hospital (DSH) 
treatment for rural hospitals and urban hospitals with fewer than 100 
beds, see section 302.

SEC. 406. REFERENCE TO PROVISION RELATING TO 2-YEAR PHASED-IN INCREASE 
              IN THE STANDARDIZED AMOUNT IN RURAL AND SMALL URBAN AREAS 
              TO ACHIEVE A SINGLE, UNIFORM STANDARDIZED AMOUNT.

    For provision phasing in over a 2-year period an increase in the 
standardized amount for rural and small urban areas to achieve a 
single, uniform, standardized amount, see section 303.

SEC. 407. REFERENCE TO PROVISION FOR MORE FREQUENT UPDATES IN THE 
              WEIGHTS USED IN HOSPITAL MARKET BASKET.

    For provision providing for more frequent updates in the weights 
used in hospital market basket, see section 304.

SEC. 408. REFERENCE TO PROVISION MAKING IMPROVEMENTS TO CRITICAL ACCESS 
              HOSPITAL PROGRAM.

    For provision providing making improvements to critical access 
hospital program, see section 305.

SEC. 409. GAO STUDY ON IMPROVING THE HOSPITAL WAGE INDEX.

    (a) Study.--
            (1) In general.--The Comptroller General of the United 
        States shall conduct a study on the improvements that can be 
        made in the measurement of regional differences in hospital 
        wages reflected in the hospital wage index under section 
        1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)).
            (2) Examination of use of metropolitan statistical areas 
        (msas).--The study shall specifically examine the use of 
        metropolitan statistical areas for purposes of computing and 
        applying the wage index and whether the boundaries of such 
        areas accurately reflect local labor markets. In addition, the 
        study shall examine whether regional inequities are created as 
        a result of infrequent updates of such boundaries and policies 
        of the Bureau of the Census relating to commuting criteria.
            (3) Wage data.--The study shall specifically examine the 
        portions of the hospital cost reports relating to wages, and 
        methods for improving the accuracy of the wage data and for 
        reducing inequities resulting from differences among hospitals 
        in the reporting of wage data.
    (b) Consultation with OMB.--The Comptroller General shall consult 
with the Director of Office of Management and Budget in conducting the 
study under subsection (a)(2).
    (c) Report.--Not later than May 1, 2003, the Comptroller General 
shall submit to Congress a report on the study conducted under 
subsection (a) and shall include in the report such recommendations as 
may be appropriate on--
            (1) changes in the definition of labor market areas used 
        for purposes of the area wage index under section 1886 of the 
        Social Security Act; and
            (2) improvements in methods for the collection of wage 
        data.

             Subtitle B--Skilled Nursing Facility Services

SEC. 411. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERVICES.

    (a) Temporary Increase in Nursing Component of PPS Federal Rate.--
Section 312(a) of BIPA is amended by adding at the end the following 
new sentence: ``The Secretary of Health and Human Services shall 
increase by 12, 10, and 8 percent the nursing component of the case-mix 
adjusted Federal prospective payment rate specified in Tables 3 and 4 
of the final rule published in the Federal Register by the Health Care 
Financing Administration on July 31, 2000 (65 Fed. Reg. 46770) and as 
subsequently updated under section 1888(e)(4)(E)(ii) of the Social 
Security Act (42 U.S.C. 1395yy(e)(4)(E)(ii)), effective for services 
furnished during fiscal years 2003, 2004, and 2005, respectively.''.
    (b) Adjustment to RUGs for AIDS Residents.--
            (1) In general.--Paragraph (12) of section 1888(e) (42 
        U.S.C. 1395yy(e)) is amended to read as follows:
            ``(12) Adjustment for residents with aids.--
                    ``(A) In general.--Subject to subparagraph (B), in 
                the case of a resident of a skilled nursing facility 
                who is afflicted with acquired immune deficiency 
                syndrome (AIDS), the per diem amount of payment 
                otherwise applicable shall be increased by 128 percent 
                to reflect increased costs associated with such 
                residents.
                    ``(B) Sunset.--Subparagraph (A) shall not apply on 
                and after such date as the Secretary certifies that 
                there is an appropriate adjustment in the case mix 
                under paragraph (4)(G)(i) to compensate for the 
                increased costs associated with residents described in 
                such subparagraph.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to services furnished on or after October 1, 2003.

                          Subtitle C--Hospice

SEC. 421. COVERAGE OF HOSPICE CONSULTATION SERVICES.

    (a) Coverage of Hospice Consultation Services.--Section 1812(a) (42 
U.S.C. 1395d(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (3);
            (2) by striking the period at the end of paragraph (4) and 
        inserting ``; and''; and
            (3) by inserting after paragraph (4) the following new 
        paragraph:
            ``(5) for individuals who are terminally ill, have not made 
        an election under subsection (d)(1), and have not previously 
        received services under this paragraph, services that are 
        furnished by a physician who is either the medical director or 
        an employee of a hospice program and that consist of--
                    ``(A) an evaluation of the individual's need for 
                pain and symptom management;
                    ``(B) counseling the individual with respect to 
                end-of-life issues and care options; and
                    ``(C) advising the individual regarding advanced 
                care planning.''.
    (b) Payment.--Section 1814(i) (42 U.S.C. l395f(i)) is amended by 
adding at the end the following new paragraph:
    ``(4) The amount paid to a hospice program with respect to the 
services under section 1812(a)(5) for which payment may be made under 
this part shall be equal to an amount equivalent to the amount 
established for an office or other outpatient visit for evaluation and 
management associated with presenting problems of moderate severity 
under the fee schedule established under section 1848(b), other than 
the portion of such amount attributable to the practice expense 
component.''.
    (c) Conforming Amendment.--Section 1861(dd)(2)(A)(i) (42 U.S.C. 
1395x(dd)(2)(A)(i)) is amended by inserting before the comma at the end 
the following: ``and services described in section 1812(a)(5)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to services provided by a hospice program on or after January 1, 
2004.

SEC. 422. 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE FURNISHED IN 
              A FRONTIER AREA.

    (a) In General.--Section 1814(i)(1) (42 U.S.C. 1395f(i)(1)) is 
amended by adding at the end the following new subparagraph:
    ``(D) With respect to hospice care furnished in a frontier area on 
or after January 1, 2003, and before January 1, 2008, the payment rates 
otherwise established for such care shall be increased by 10 percent. 
For purposes of this subparagraph, the term `frontier area' means a 
county in which the population density is less than 7 persons per 
square mile.''.
    (b) Report on Costs.--Not later than January 1, 2007, the 
Comptroller General of the United States shall submit to Congress a 
report on the costs of furnishing hospice care in frontier areas. Such 
report shall include recommendations regarding the appropriateness of 
extending, and modifying, the payment increase provided under the 
amendment made by subsection (a).

SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.

    (a) In General.--The Secretary shall conduct a demonstration 
project for the delivery of hospice care to medicare beneficiaries in 
rural areas. Under the project medicare beneficiaries who are unable to 
receive hospice care in the home for lack of an appropriate caregiver 
are provided such care in a facility of 20 or fewer beds which offers, 
within its walls, the full range of services provided by hospice 
programs under section 1861(dd) of the Social Security Act (42 U.S.C. 
1395x(dd)).
    (b) Scope of Project.--The Secretary shall conduct the project 
under this section with respect to no more than 3 hospice programs over 
a period of not longer than 5 years each.
    (c) Compliance with Conditions.--Under the demonstration project--
            (1) the hospice program shall comply with otherwise 
        applicable requirements, except that it shall not be required 
        to offer services outside of the home or to meet the 
        requirements of section 1861(dd)(2)(A)(iii) of the Social 
        Security Act; and
            (2) payments for hospice care shall be made at the rates 
        otherwise applicable to such care under title XVIII of such 
        Act.
The Secretary may require the program to comply with such additional 
quality assurance standards for its provision of services in its 
facility as the Secretary deems appropriate.
    (d) Report.--Upon completion of the project, the Secretary shall 
submit a report to Congress on the project and shall include in the 
report recommendations regarding extension of such project to hospice 
programs serving rural areas.

                      Subtitle D--Other Provisions

SEC. 431. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

    (a) In General.--The Secretary of Health and Human Services shall 
conduct a demonstration project under this section (in this section 
referred to as the ``project'') to demonstrate the use of recovery 
audit contractors under the Medicare Integrity Program in identifying 
underpayments and overpayments and recouping overpayments under the 
medicare program for services for which payment is made under part A of 
title XVIII of the Social Security Act. Under the project--
            (1) payment may be made to such a contractor on a 
        contingent basis;
            (2) a percentage of the amount recovered may be retained by 
        the Secretary and shall be available to the program management 
        account of the Centers for Medicare & Medicaid Services; and
            (3) the Secretary shall examine the efficacy of such use 
        with respect to duplicative payments, accuracy of coding, and 
        other payment policies in which inaccurate payments arise.
    (b) Scope and Duration.--The project shall cover at least 2 States 
and at least 3 contractors and shall last for not longer than 3 years.
    (c) Waiver.--The Secretary of Health and Human Services shall waive 
such provisions of title XVIII of the Social Security Act as may be 
necessary to provide for payment for services under the project in 
accordance with subsection (a).
    (d) Qualifications of Contractors.--
            (1) In general.--The Secretary shall enter into a recovery 
        audit contract under this section with an entity only if the 
        entity has staff that has knowledge of and experience with the 
        payment rules and regulations under the medicare program or the 
        entity has or will contract with another entity that has such 
        knowledgeable and experienced staff.
            (2) Ineligibility of certain contractors.--The Secretary 
        may not enter into a recovery audit contract under this section 
        with an entity to the extent that the entity is a fiscal 
        intermediary under section 1816 of the Social Security Act (42 
        U.S.C. 1395h), a carrier under section 1842 of such Act (42 
        U.S.C. 1395u), or a Medicare Administrative Contractor under 
        section 1874A of such Act.
            (3) Preference for entities with demonstrated proficiency 
        with private insurers.--In awarding contracts to recovery audit 
        contractors under this section, the Secretary shall give 
        preference to those entities that the Secretary determines have 
        demonstrated proficiency in recovery audits with private 
        insurers or under the medicaid program under title XIX of such 
        Act.
    (e) Report.--The Secretary of Health and Human Services shall 
submit to Congress a report on the project not later than 6 months 
after the date of its completion. Such reports shall include 
information on the impact of the project on savings to the medicare 
program and recommendations on the cost-effectiveness of extending or 
expanding the project.

                 TITLE V--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

SEC. 501. REVISION OF UPDATES FOR PHYSICIANS' SERVICES.

    (a) Update for 2003 through 2005.--
            (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is 
        amended by adding at the end the following new paragraphs:
            ``(5) Update for 2003.--The update to the single conversion 
        factor established in paragraph (1)(C) for 2003 is 2 percent.
            ``(6) Special rules for update for 2004 and 2005.--The 
        following rules apply in determining the update adjustment 
        factors under paragraph (4)(B) for 2004 and 2005:
                    ``(A) Use of 2002 data in determining allowable 
                costs.--
                            ``(i) The reference in clause (ii)(I) of 
                        such paragraph to April 1, 1996, is deemed to 
                        be a reference to January 1, 2002.
                            ``(ii) The allowed expenditures for 2002 is 
                        deemed to be equal to the actual expenditures 
                        for physicians' services furnished during 2002, 
                        as estimated by the Secretary.
                    ``(B) 1 percentage point increase in gdp under 
                sgr.--The annual average percentage growth in real 
                gross domestic product per capita under subsection 
                (f)(2)(C) for each of 2003, 2004, and 2005 is deemed to 
                be increased by 1 percentage point.''.
            (2) Conforming amendment.--Paragraph (4)(B) of such section 
        is amended, in the matter before clause (i), by inserting ``and 
        paragraph (6)'' after ``subparagraph (D)''.
            (3) Not treated as change in law and regulation in 
        sustainable growth rate determination.--The amendments made by 
        this subsection shall not be treated as a change in law for 
        purposes of applying section 1848(f)(2)(D) of the Social 
        Security Act (42 U.S.C. 1395w-4(f)(2)(D)).
    (b) Use of 10-Year Rolling Average in Computing Gross Domestic 
Product.--
            (1) In general.--Section 1848(f)(2)(C) (42 U.S.C. 1395w-
        4(f)(2)(C)) is amended--
                    (A) by striking ``projected'' and inserting 
                ``annual average''; and
                    (B) by striking ``from the previous applicable 
                period to the applicable period involved'' and 
                inserting ``during the 10-year period ending with the 
                applicable period involved''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to computations of the sustainable growth rate for 
        years beginning with 2002.
    (c) Elimination of Transitional Adjustment.--Section 1848(d)(4)(F) 
(42 U.S.C. 1395w-4(d)(4)(F)) is amended by striking ``subparagraph 
(A)'' and all that follows and inserting ``subparagraph (A), for each 
of 2001 and 2002, of -0.2 percent.''.
    (d) GAO Study of Medicare Payment for Inhalation Therapy.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study to examine the adequacy of current 
        reimbursements for inhalation therapy under the medicare 
        program.
            (2) Report.--Not later than May 1, 2003, the Comptroller 
        General shall submit to Congress a report on the study 
        conducted under paragraph (1).

SEC. 502. STUDIES ON ACCESS TO PHYSICIANS' SERVICES.

    (a) GAO Study on Beneficiary Access to Physicians' Services.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study on access of medicare beneficiaries to 
        physicians' services under the medicare program. The study 
        shall include--
                    (A) an assessment of the use by beneficiaries of 
                such services through an analysis of claims submitted 
                by physicians for such services under part B of the 
                medicare program;
                    (B) an examination of changes in the use by 
                beneficiaries of physicians' services over time;
                    (C) an examination of the extent to which 
                physicians are not accepting new medicare beneficiaries 
                as patients.
            (2) Report.--Not later than 18 months after the date of the 
        enactment of this Act, the Comptroller General shall submit to 
        Congress a report on the study conducted under paragraph (1). 
        The report shall include a determination whether--
                    (A) data from claims submitted by physicians under 
                part B of the medicare program indicate potential 
                access problems for medicare beneficiaries in certain 
                geographic areas; and
                    (B) access by medicare beneficiaries to physicians' 
                services may have improved, remained constant, or 
                deteriorated over time.
    (b) Study and Report on Supply of Physicians.--
            (1) Study.--The Secretary shall request the Institute of 
        Medicine of the National Academy of Sciences to conduct a study 
        on the adequacy of the supply of physicians (including 
        specialists) in the United States and the factors that affect 
        such supply.
            (2) Report to congress.--Not later than 2 years after the 
        date of enactment of this section, the Secretary shall submit 
        to Congress a report on the results of the study described in 
        paragraph (1), including any recommendations for legislation.

SEC. 503. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

    Not later than 1 year after the date of the enactment of this Act, 
the Medicare Payment Advisory Commission shall submit to Congress a 
report on the effect of refinements to the practice expense component 
of payments for physicians' services, after the transition to a full 
resource-based payment system in 2002, under section 1848 of the Social 
Security Act (42 U.S.C. 1395w-4). Such report shall examine the 
following matters by physician specialty:
            (1) The effect of such refinements on payment for 
        physicians' services.
            (2) The interaction of the practice expense component with 
        other components of and adjustments to payment for physicians' 
        services under such section.
            (3) The appropriateness of the amount of compensation by 
        reason of such refinements.
            (4) The effect of such refinements on access to care by 
        medicare beneficiaries to physicians' services.
            (5) The effect of such refinements on physician 
        participation under the medicare program.

SEC. 504. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 
              SERVICES UNDER MEDICARE.

    Section 542(c) of BIPA is amended by striking ``2-year period'' and 
inserting ``3-year period''.

SEC. 505. PHYSICIAN FEE SCHEDULE WAGE INDEX REVISION.

    (a) Index Revision.--
            (1) In general.--Subject to paragraph (2), notwithstanding 
        any other provision of law, for purposes of payment under the 
        physician fee schedule under section 1848 of the Social 
        Security Act (42 U.S.C. 1395w-4) for physicians' services 
        furnished during 2004, in no case may the work geographic index 
        otherwise calculated under subsection (e)(1)(A)(iii) of such 
        section be less than 0.985.
            (2) Secretarial discretion.--Paragraph (1) shall not take 
        effect or be in force if the Secretary determines, taking into 
        account the report of the Comptroller General under subsection 
        (b)(2), that there is no sound economic rationale for the 
        implementation of such paragraph.
            (3) Exemption from limitation on annual adjustments.--Any 
        increase in expenditures attributable to paragraph (1) during 
        2004 shall not be taken into account in applying section 
        1848(c)(2)(B)(ii)(II) of the Social Security Act (42 U.S.C. 
        1395w-4(c)(2)(B)(ii)(II)) for that year.
    (b) GAO Report.--
            (1) Evaluation.--As part of the study on geographic 
        differences in payments for physicians' services conducted 
        under section 309, the Comptroller General shall evaluate the 
        following:
                    (A) Whether there is a sound economic basis for the 
                implementation of the adjustment under subsection 
                (a)(1) in those areas in which the adjustment applies.
                    (B) The effect of such adjustment on physician 
                location and retention in areas affected by such 
                adjustment, taking into account--
                            (i) differences in recruitment costs and 
                        retention rates for physicians, including 
                        specialists, between large urban areas and 
                        other areas; and
                            (ii) the mobility of physicians, including 
                        specialists, over the last decade.
                    (C) The appropriateness of establishing a floor of 
                1.0 for the work geographic index.
            (2) Report.--By not later than September 1, 2003, the 
        Comptroller General shall submit to Congress and to the 
        Secretary a report on the evaluation conducted under paragraph 
        (1).

                       Subtitle B--Other Services

SEC. 511. COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES.

    (a) In General.--Section 1847 (42 U.S.C. 1395w-3) is amended to 
read as follows:

        ``competitive acquisition of certain items and services

    ``Sec. 1847. (a) Establishment of Competitive Acquisition 
Programs.--
            ``(1) Implementation of programs.--
                    ``(A) In general.--The Secretary shall establish 
                and implement programs under which competitive 
                acquisition areas are established throughout the United 
                States for contract award purposes for the furnishing 
                under this part of competitively priced items and 
                services (described in paragraph (2)) for which payment 
                is made under this part. Such areas may differ for 
                different items and services.
                    ``(B) Phased-in implementation.--The programs shall 
                be phased-in among competitive acquisition areas over a 
                period of not longer than 3 years in a manner so that 
                the competition under the programs occurs in--
                            ``(i) at least \1/3\ of such areas in 2004; 
                        and
                            ``(ii) at least \2/3\ of such areas in 
                        2005.
                    ``(C) Waiver of certain provisions.--In carrying 
                out the programs, the Secretary may waive such 
                provisions of the Federal Acquisition Regulation as are 
                necessary for the efficient implementation of this 
                section, other than provisions relating to 
                confidentiality of information and such other 
                provisions as the Secretary determines appropriate.
            ``(2) Items and services described.--The items and services 
        referred to in paragraph (1) are the following:
                    ``(A) Durable medical equipment and inhalation 
                drugs used in connection with durable medical 
                equipment.--Covered items (as defined in section 
                1834(a)(13)) for which payment is otherwise made under 
                section 1834(a), other than items used in infusion, and 
                inhalation drugs used in conjunction with durable 
                medical equipment.
                    ``(B) Off-the-shelf orthotics.--Orthotics 
                (described in section 1861(s)(9)) for which payment is 
                otherwise made under section 1834(h) which require 
                minimal self-adjustment for appropriate use and does 
                not require expertise in trimming, bending, molding, 
                assembling, or customizing to fit to the patient.
            ``(3) Exemption authority.--In carrying out the programs 
        under this section, the Secretary may exempt--
                    ``(A) areas that are not competitive due to low 
                population density; and
                    ``(B) items and services for which the application 
                of competitive acquisition is not likely to result in 
                significant savings.
    ``(b) Program Requirements.--
            ``(1) In general.--The Secretary shall conduct a 
        competition among entities supplying items and services 
        described in subsection (a)(2) for each competitive acquisition 
        area in which the program is implemented under subsection (a) 
        with respect to such items and services.
            ``(2) Conditions for awarding contract.--
                    ``(A) In general.--The Secretary may not award a 
                contract to any entity under the competition conducted 
                in an competitive acquisition area pursuant to 
                paragraph (1) to furnish such items or services unless 
                the Secretary finds all of the following:
                            ``(i) The entity meets quality and 
                        financial standards specified by the Secretary 
                        or developed by accreditation entities or 
                        organizations recognized by the Secretary.
                            ``(ii) The total amounts to be paid under 
                        the contract (including costs associated with 
                        the administration of the contract) are 
                        expected to be less than the total amounts that 
                        would otherwise be paid.
                            ``(iii) Beneficiary access to a choice of 
                        multiple suppliers in the area is maintained.
                            ``(iv) Beneficiary liability is limited to 
                        the applicable percentage of contract award 
                        price.
                    ``(B) Quality standards.--The quality standards 
                specified under subparagraph (A)(i) shall not be less 
                than the quality standards that would otherwise apply 
                if this section did not apply and shall include 
                consumer services standards. The Secretary shall 
                consult with an expert outside advisory panel composed 
                of an appropriate selection of representatives of 
                physicians, practitioners, and suppliers to review (and 
                advise the Secretary concerning) such quality 
                standards.
            ``(3) Contents of contract.--
                    ``(A) In general.--A contract entered into with an 
                entity under the competition conducted pursuant to 
                paragraph (1) is subject to terms and conditions that 
                the Secretary may specify.
                    ``(B) Term of contracts.--The Secretary shall rebid 
                contracts under this section not less often than once 
                every 3 years.
            ``(4) Limit on number of contractors.--
                    ``(A) In general.--The Secretary may limit the 
                number of contractors in a competitive acquisition area 
                to the number needed to meet projected demand for items 
                and services covered under the contracts. In awarding 
                contracts, the Secretary shall take into account the 
                ability of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of beneficiaries for such items or 
                services in the geographic area covered under the 
                contract on a timely basis.
                    ``(B) Multiple winners.--The Secretary shall award 
                contracts to more than one entity submitting a bid in 
                each area for an item or service.
            ``(5) Participating contractors.--Payment shall not be made 
        for items and services described in subsection (a)(2) furnished 
        by a contractor and for which competition is conducted under 
        this section unless--
                    ``(A) the contractor has submitted a bid for such 
                items and services under this section; and
                    ``(B) the Secretary has awarded a contract to the 
                contractor for such items and services under this 
                section.
            ``(6) Authority to contract for education, outreach and 
        complaint services.--The Secretary may enter into a contract 
        with an appropriate entity to address complaints from 
        beneficiaries who receive items and services from an entity 
        with a contract under this section and to conduct appropriate 
        education of and outreach to such beneficiaries with respect to 
        the program.
    ``(c) Annual Reports.--The Secretary shall submit to Congress an 
annual management report on the programs under this section. Each such 
report shall include information on savings, reductions in cost-
sharing, access to items and services, and beneficiary satisfaction.
    ``(d) Demonstration Project for Clinical Laboratory Services.--
            ``(1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                    ``(A) for which payment is otherwise made under 
                section 1833(h) or 1834(d)(1) (relating to colorectal 
                cancer screening tests); and
                    ``(B) which are furnished without a face-to-face 
                encounter between the individual and the hospital or 
                physician ordering the tests.
            ``(2) Terms and conditions.--Such project shall be under 
        the same conditions as are applicable to items and services 
        described in subsection (a)(2).
            ``(3) Report.--The Secretary shall submit to Congress--
                    ``(A) an initial report on the project not later 
                than December 31, 2004; and
                    ``(B) such progress and final reports on the 
                project after such date as the Secretary determines 
                appropriate.''.
    (b) Continuation of Certain Demonstration Projects.--
Notwithstanding the amendment made by subsection (a), with respect to 
demonstration projects implemented by the Secretary under section 1847 
of the Social Security Act (42 U.S.C. 1395w-3) (relating to the 
establishment of competitive acquisition areas) that was in effect on 
the day before the date of the enactment of this Act, each such 
demonstration project may continue under the same terms and conditions 
applicable under that section as in effect on that date.
    (c) Report on Differences in Payment for Laboratory Services.--Not 
later than 18 months after the date of the enactment of this Act, the 
Comptroller General of the United States shall submit to Congress a 
report that analyzes differences in reimbursement between public and 
private payors for clinical diagnostic laboratory services.

SEC. 512. PAYMENT FOR AMBULANCE SERVICES.

    (a) Phase-In Providing Floor Using Blend of Fee Schedule and 
Regional Fee Schedules.--Section 1834(l) (42 U.S.C. 1395m(l)) is 
amended--
            (1) in paragraph (2)(E), by inserting ``consistent with 
        paragraph (10)'' after ``in an efficient and fair manner'';
            (2) by redesignating the paragraph (8) added by section 
        221(a) of BIPA as paragraph (9); and
            (3) by adding at the end the following new paragraph:
            ``(10) Phase-in providing floor using blend of fee schedule 
        and regional fee schedules.--In carrying out the phase-in under 
        paragraph (2)(E) for each level of service furnished in a year 
        before January 1, 2007, the portion of the payment amount that 
        is based on the fee schedule shall not be less than the 
        following blended rate of the fee schedule under paragraph (1) 
        and of a regional fee schedule for the region involved:
                    ``(A) For 2003, the blended rate shall be based 20 
                percent on the fee schedule under paragraph (1) and 80 
                percent on the regional fee schedule.
                    ``(B) For 2004, the blended rate shall be based 40 
                percent on the fee schedule under paragraph (1) and 60 
                percent on the regional fee schedule.
                    ``(C) For 2005, the blended rate shall be based 60 
                percent on the fee schedule under paragraph (1) and 40 
                percent on the regional fee schedule.
                    ``(D) For 2006, the blended rate shall be based 80 
                percent on the fee schedule under paragraph (1) and 20 
                percent on the regional fee schedule.
        For purposes of this paragraph, the Secretary shall establish a 
        regional fee schedule for each of the 9 Census divisions using 
        the methodology (used in establishing the fee schedule under 
        paragraph (1)) to calculate a regional conversion factor and a 
        regional mileage payment rate and using the same payment 
        adjustments and the same relative value units as used in the 
        fee schedule under such paragraph.''.
    (b) Adjustment in Payment for Certain Long Trips.--Section 1834(l), 
as amended by subsection (a), is further amended by adding at the end 
the following new paragraph:
            ``(11) Adjustment in payment for certain long trips.--In 
        the case of ground ambulance services furnished on or after 
        January 1, 2003, and before January 1, 2008, regardless of 
        where the transportation originates, the fee schedule 
        established under this subsection shall provide that, with 
        respect to the payment rate for mileage for a trip above 50 
        miles the per mile rate otherwise established shall be 
        increased by \1/4\ of the payment per mile otherwise applicable 
        to such miles.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to ambulance services furnished on or after January 1, 2003.

SEC. 513. 2-YEAR EXTENSION OF MORATORIUM ON THERAPY CAPS; PROVISIONS 
              RELATING TO REPORTS.

    (a) 2-Year Extension of Moratorium on Therapy Caps.--Section 
1833(g)(4) (42 U.S.C. 1395l(g)(4)) is amended by striking ``and 2002'' 
and inserting ``2002, 2003, and 2004''.
    (b) Prompt Submission of Overdue Reports on Payment and Utilization 
of Outpatient Therapy Services.--Not later than December 31, 2002, the 
Secretary shall submit to Congress the reports required under section 
4541(d)(2) of the Balanced Budget Act of 1997 (relating to alternatives 
to a single annual dollar cap on outpatient therapy) and under section 
221(d) of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 (relating to utilization patterns for outpatient therapy).
    (c) Identification of Conditions and Diseases Justifying Waiver of 
Therapy Cap.--
            (1) Study.--The Secretary shall request the Institute of 
        Medicine of the National Academy of Sciences to identify 
        conditions or diseases that should justify conducting an 
        assessment of the need to waive the therapy caps under section 
        1833(g)(4) of the Social Security Act (42 U.S.C. 1395l(g)(4)).
            (2) Reports to congress.--Not later than September 1, 2003, 
        the Secretary shall submit to Congress a preliminary report on 
        the conditions and diseases identified under paragraph (1) and 
        not later than December 31, 2003, a final report on the 
        conditions and diseases so identified.
    (d) GAO Study of Patient Access to Physical Therapist Services.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study on access to physical therapist services 
        in States authorizing such services without a physician 
        referral and in States that require such a physician referral. 
        The study shall--
                    (A) examine the use of and referral patterns for 
                physical therapist services for patients age 50 and 
                older in States that authorize such services without a 
                physician referral and in States that require such a 
                physician referral;
                    (B) examine the use of and referral patterns for 
                physical therapist services for patients who are 
                medicare beneficiaries;
                    (C) examine the potential effect of prohibiting a 
                physician from referring patients to physical therapy 
                services owned by the physician and provided in the 
                physician's office;
                    (D) examine the delivery of physical therapists' 
                services within the facilities of Department of 
                Defense; and
                    (E) analyze the potential impact on medicare 
                beneficiaries and on expenditures under the medicare 
                program of eliminating the need for a physician 
                referral and physician certification for physical 
                therapist services under the medicare program.
            (2) Report.--The Comptroller General shall submit to 
        Congress a report on the study conducted under paragraph (1) by 
        not later than 1 year after the date of the enactment of this 
        Act.

SEC. 514. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL EXAMINATION.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) is 
amended--
            (1) in subparagraph (U), by striking ``and'' at the end;
            (2) in subparagraph (V), by inserting ``and'' at the end; 
        and
            (3) by adding at the end the following new subparagraph:
            ``(W) an initial preventive physical examination (as 
        defined in subsection (ww));''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x) is amended 
by adding at the end the following new subsection:

               ``Initial Preventive Physical Examination

    ``(ww) The term `initial preventive physical examination' means 
physicians' services consisting of a physical examination with the goal 
of health promotion and disease detection and includes items and 
services (excluding clinical laboratory tests), as determined by the 
Secretary, consistent with the recommendations of the United States 
Preventive Services Task Force.''.
    (c) Waiver of Deductible and Coinsurance.--
            (1) Deductible.--The first sentence of section 1833(b) (42 
        U.S.C. 1395l(b)) is amended--
                    (A) by striking ``and'' before ``(6)'', and
                    (B) by inserting before the period at the end the 
                following: ``, and (7) such deductible shall not apply 
                with respect to an initial preventive physical 
                examination (as defined in section 1861(ww))''.
            (2) Coinsurance.--Section 1833(a)(1) (42 U.S.C. 
        1395l(a)(1)) is amended--
                    (A) in clause (N), by inserting ``(or 100 percent 
                in the case of an initial preventive physical 
                examination, as defined in section 1861(ww))'' after 
                ``80 percent''; and
                    (B) in clause (O), by inserting ``(or 100 percent 
                in the case of an initial preventive physical 
                examination, as defined in section 1861(ww))'' after 
                ``80 percent''.
    (d) Payment as Physicians' Services.--Section 1848(j)(3) (42 U.S.C. 
1395w-4(j)(3)) is amended by inserting ``(2)(W),'' after ``(2)(S),''.
    (e) Other Conforming Amendments.--Section 1862(a) (42 U.S.C. 
1395y(a)) is amended--
            (1) in paragraph (1)--
                    (A) by striking ``and'' at the end of subparagraph 
                (H);
                    (B) by striking the semicolon at the end of 
                subparagraph (I) and inserting ``, and''; and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(J) in the case of an initial preventive physical 
        examination, which is performed not later than 6 months after 
        the date the individual's first coverage period begins under 
        part B;''; and
            (2) in paragraph (7), by striking ``or (H)'' and inserting 
        ``(H), or (J)''.
    (f) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 2004, but only for 
individuals whose coverage period begins on or after such date.

SEC. 515. RENAL DIALYSIS SERVICES.

    (a) Report on Differences in Costs in Different Settings.--Not 
later than 1 year after the date of the enactment of this Act, the 
Comptroller General of the United States shall submit to Congress a 
report containing--
            (1) an analysis of the differences in costs of providing 
        renal dialysis services under the medicare program in home 
        settings and in facility settings;
            (2) an assessment of the percentage of overhead costs in 
        home settings and in facility settings; and
            (3) an evaluation of whether the charges for home dialysis 
        supplies and equipment are reasonable and necessary.
    (b) Restoring Composite Rate Exceptions for Pediatric Facilities.--
            (1) In general.--Section 422(a)(2) of BIPA is amended--
                    (A) in subparagraph (A), by striking ``and (C)'' 
                and inserting ``, (C), and (D)'';
                    (B) in subparagraph (B), by striking ``In the 
                case'' and inserting ``Subject to subparagraph (D), in 
                the case''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(D) Inapplicability to pediatric facilities.--
                Subparagraphs (A) and (B) shall not apply, as of 
                October 1, 2002, to pediatric facilities that do not 
                have an exception rate described in subparagraph (C) in 
                effect on such date. For purposes of this subparagraph, 
                the term `pediatric facility' means a renal facility at 
                least 50 percent of whose patients are individuals 
                under 18 years of age.''.
            (2) Conforming amendment.--The fourth sentence of section 
        1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended by striking 
        ``The Secretary'' and inserting ``Subject to section 422(a)(2) 
        of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
        Protection Act of 2000, the Secretary''.
    (c) Increase in Renal Dialysis Composite Rate for Services 
Furnished in 2004.--Notwithstanding any other provision of law, with 
respect to payment under part B of title XVIII of the Social Security 
Act for renal dialysis services furnished in 2004, the composite 
payment rate otherwise established under section 1881(b)(7) of such Act 
(42 U.S.C. 1395rr(b)(7)) shall be increased by 1.2 percent.

SEC. 516. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

    (a) Exclusion from OPD Fee Schedule.--Section 1833(t)(1)(B)(iv) (42 
U.S.C. 1395l(t)(1)(B)(iv)) is amended by inserting before the period at 
the end the following: ``and does not include screening mammography (as 
defined in section 1861(jj)) and unilateral and bilateral diagnostic 
mammography''.
    (b) Adjustment to Technical Component.--For diagnostic mammography 
performed on or after January 1, 2004, for which payment is made under 
the physician fee schedule under section 1848 of the Social Security 
Act (42 U.S.C. 1395w-4), the Secretary, based on the most recent cost 
data available, shall provide for an appropriate adjustment in the 
payment amount for the technical component of the diagnostic 
mammography.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to mammography performed on or after January 1, 2004.

SEC. 517. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY 
              RETIREES; SPECIAL ENROLLMENT PERIOD.

    (a) Waiver of Penalty.--
            (1) In general.--Section 1839(b) (42 U.S.C. 1395r(b)) is 
        amended by adding at the end the following new sentence: ``No 
        increase in the premium shall be effected for a month in the 
        case of an individual who is 65 years of age or older, who 
        enrolls under this part during 2001, 2002, or 2003, and who 
        demonstrates to the Secretary before December 31, 2003, that 
        the individual is a covered beneficiary (as defined in section 
        1072(5) of title 10, United States Code). The Secretary of 
        Health and Human Services shall consult with the Secretary of 
        Defense in identifying individuals described in the previous 
        sentence.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to premiums for months beginning with January 2003. 
        The Secretary of Health and Human Services shall establish a 
        method for providing rebates of premium penalties paid for 
        months on or after January 2003 for which a penalty does not 
        apply under such amendment but for which a penalty was 
        previously collected.
    (b) Medicare Part B Special Enrollment Period.--
            (1) In general.--In the case of any individual who, as of 
        the date of the enactment of this Act, is 65 years of age or 
        older, is eligible to enroll but is not enrolled under part B 
        of title XVIII of the Social Security Act, and is a covered 
        beneficiary (as defined in section 1072(5) of title 10, United 
        States Code), the Secretary of Health and Human Services shall 
        provide for a special enrollment period during which the 
        individual may enroll under such part. Such period shall begin 
        as soon as possible after the date of the enactment of this Act 
        and shall end on December 31, 2003.
            (2) Coverage period.--In the case of an individual who 
        enrolls during the special enrollment period provided under 
        paragraph (1), the coverage period under part B of title XVIII 
        of the Social Security Act shall begin on the first day of the 
        month following the month in which the individual enrolls.

SEC. 518. COVERAGE OF CHOLESTEROL AND BLOOD LIPID SCREENING.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by section 514(a), is amended--
            (1) in subparagraph (V), by striking ``and'' at the end;
            (2) in subparagraph (W), by inserting ``and'' at the end; 
        and
            (3) by adding at the end the following new subparagraph:
                    ``(X) cholesterol and other blood lipid screening 
                tests (as defined in subsection (XX));''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as amended 
by section 514(b), is amended by adding at the end the following new 
subsection:

           ``Cholesterol and Other Blood Lipid Screening Test

    ``(xx)(1) The term `cholesterol and other blood lipid screening 
test' means diagnostic testing of cholesterol and other lipid levels of 
the blood for the purpose of early detection of abnormal cholesterol 
and other lipid levels.
    ``(2) The Secretary shall establish standards, in consultation with 
appropriate organizations, regarding the frequency and type of 
cholesterol and other blood lipid screening tests, except that such 
frequency may not be more often than once every 2 years.''.
    (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as 
amended by section 514(e), is amended--
            (1) by striking ``and'' at the end of subparagraph (I);
            (2) by striking the semicolon at the end of subparagraph 
        (J) and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
            ``(K) in the case of a cholesterol and other blood lipid 
        screening test (as defined in section 1861(xx)(1)), which is 
        performed more frequently than is covered under section 
        1861(xx)(2).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to tests furnished on or after January 1, 2004.

             TITLE VI--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 601. ELIMINATION OF 15 PERCENT REDUCTION IN PAYMENT RATES UNDER 
              THE PROSPECTIVE PAYMENT SYSTEM.

    (a) In General.--Section 1895(b)(3)(A) (42 U.S.C. 1395fff(b)(3)(A)) 
is amended to read as follows:
                    ``(A) Initial basis.--Under such system the 
                Secretary shall provide for computation of a standard 
                prospective payment amount (or amounts) as follows:
                            ``(i) Such amount (or amounts) shall 
                        initially be based on the most current audited 
                        cost report data available to the Secretary and 
                        shall be computed in a manner so that the total 
                        amounts payable under the system for fiscal 
                        year 2001 shall be equal to the total amount 
                        that would have been made if the system had not 
                        been in effect and if section 1861(v)(1)(L)(ix) 
                        had not been enacted.
                            ``(ii) For fiscal year 2002 and for the 
                        first quarter of fiscal year 2003, such amount 
                        (or amounts) shall be equal to the amount (or 
                        amounts) determined under this paragraph for 
                        the previous fiscal year, updated under 
                        subparagraph (B).
                            ``(iii) For 2003, such amount (or amounts) 
                        shall be equal to the amount (or amounts) 
                        determined under this paragraph for fiscal year 
                        2002, updated under subparagraph (B) for 2003.
                            ``(iv) For 2004 and each subsequent year, 
                        such amount (or amounts) shall be equal to the 
                        amount (or amounts) determined under this 
                        paragraph for the previous year, updated under 
                        subparagraph (B).
                Each such amount shall be standardized in a manner that 
                eliminates the effect of variations in relative case 
                mix and area wage adjustments among different home 
                health agencies in a budget neutral manner consistent 
                with the case mix and wage level adjustments provided 
                under paragraph (4)(A). Under the system, the Secretary 
                may recognize regional differences or differences based 
                upon whether or not the services or agency are in an 
                urbanized area.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect as if included in the amendments made by section 501 of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (as enacted into law by section 1(a)(6) of Public Law 106-554).

SEC. 602. UPDATE IN HOME HEALTH SERVICES.

    (a) Change to Calendar Year Update.--
            (1) In general.--Section 1895(b) (42 U.S.C. 1395fff(b)(3)) 
        is amended--
                    (A) in paragraph (3)(B)(i)--
                            (i) by striking ``each fiscal year 
                        (beginning with fiscal year 2002)'' and 
                        inserting ``fiscal year 2002 and for each 
                        subsequent year (beginning with 2003)''; and
                            (ii) by inserting ``or year'' after ``the 
                        fiscal year'';
                    (B) in paragraph (3)(B)(ii)--
                            (i) in subclause (II), by striking ``fiscal 
                        year'' and inserting ``year'' and by 
                        redesignating such subclause as subclause 
                        (III); and
                            (ii) in subclause (I), by striking ``each 
                        of fiscal years 2002 and 2003'' and inserting 
                        the following: ``fiscal year 2002, the home 
                        health market basket percentage increase (as 
                        defined in clause (iii)) minus 1.1 percentage 
                        points;
                                    ``(II) 2003'';
                    (C) in paragraph (3)(B)(iii), by inserting ``or 
                year'' after ``fiscal year'' each place it appears;
                    (D) in paragraph (3)(B)(iv)--
                            (i) by inserting ``or year'' after ``fiscal 
                        year'' each place it appears; and
                            (ii) by inserting ``or years'' after 
                        ``fiscal years''; and
                    (E) in paragraph (5), by inserting ``or year'' 
                after ``fiscal year''.
            (2) Transition rule.--The standard prospective payment 
        amount (or amounts) under section 1895(b)(3) of the Social 
        Security Act for the calendar quarter beginning on October 1, 
        2002, shall be such amount (or amounts) for the previous 
        calendar quarter.
    (b) Changes in Updates for 2003, 2004, and 2005.--Section 
1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended by 
subsection (a)(1)(B), is amended--
            (1) in subclause (II), by striking ``the home health market 
        basket percentage increase (as defined in clause (iii)) minus 
        1.1 percentage points'' and inserting ``2.0 percentage 
        points'';
            (2) by striking ``or'' at the end of subclause (II);
            (3) by redesignating subclause (III) as subclause (V); and
            (4) by inserting after subclause (II) the following new 
        subclause:
                                    ``(III) 2004, 1.1 percentage 
                                points;
                                    ``(IV) 2005, 2.7 percentage points; 
                                or''.
    (c) Payment Adjustment.--
            (1) In general.--Section 1895(b)(5) (42 U.S.C. 
        1395fff(b)(5)) is amended by striking ``5 percent'' and 
        inserting ``3 percent''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to years beginning with 2003.

SEC. 603. OASIS TASK FORCE; SUSPENSION OF CERTAIN OASIS DATA COLLECTION 
              REQUIREMENTS PENDING TASK FORCE SUBMITTAL OF REPORT.

    (a) Establishment.--The Secretary of Health and Human Services 
shall establish and appoint a task force (to be known as the ``OASIS 
Task Force'') to examine the data collection and reporting requirements 
under OASIS. For purposes of this section, the term ``OASIS'' means the 
Outcome and Assessment Information Set required by reason of section 
4602(e) of Balanced Budget Act of 1997 (42 U.S.C. 1395fff note).
    (b) Composition.--The OASIS Task Force shall be composed of the 
following:
            (1) Staff of the Centers for Medicare & Medicaid Services 
        with expertise in post-acute care.
            (2) Representatives of home health agencies.
            (3) Health care professionals and research and health care 
        quality experts outside the Federal Government with expertise 
        in post-acute care.
            (4) Advocates for individuals requiring home health 
        services.
    (c) Duties.--
            (1) Review and recommendations.--The OASIS Task Force shall 
        review and make recommendations to the Secretary regarding 
        changes in OASIS to improve and simplify data collection for 
        purposes of--
                    (A) assessing the quality of home health services; 
                and
                    (B) providing consistency in classification of 
                patients into home health resource groups (HHRGs) for 
                payment under section 1895 of the Social Security Act 
                (42 U.S.C. 1395fff).
            (2) Specific items.--In conducting the review under 
        paragraph (1), the OASIS Task Force shall specifically 
        examine--
                    (A) the 41 outcome measures currently in use;
                    (B) the timing and frequency of data collection; 
                and
                    (C) the collection of information on comorbidities 
                and clinical indicators.
            (3) Report.--The OASIS Task Force shall submit a report to 
        the Secretary containing its findings and recommendations for 
        changes in OASIS by not later than 18 months after the date of 
        the enactment of this Act.
    (d) Sunset.--The OASIS Task Force shall terminate 60 days after the 
date on which the report is submitted under subsection (c)(2).
    (e) Nonapplication of FACA.--The provisions of the Federal Advisory 
Committee Act shall not apply to the OASIS Task Force.
    (f) Suspension of OASIS Requirement for Collection of Data on Non-
Medicare and Non-Medicaid Patients Pending Task Force Report.--
            (1) In general.--During the period described in paragraph 
        (2), the Secretary of Health and Human Services may not 
        require, under section 4602(e) of the Balanced Budget Act of 
        1997 or otherwise under OASIS, a home health agency to gather 
        or submit information that relates to an individual who is not 
        eligible for benefits under either title XVIII or title XIX of 
        the Social Security Act.
            (2) Period of suspension.--The period described in this 
        paragraph--
                    (A) begins on January 1, 2003, and
                    (B) ends on the last day of the 2nd month beginning 
                after the date the report is submitted under subsection 
                (c)(2).

SEC. 604. MEDPAC STUDY ON MEDICARE MARGINS OF HOME HEALTH AGENCIES.

    (a) Study.--The Medicare Payment Advisory Commission shall conduct 
a study of payment margins of home health agencies under the home 
health prospective payment system under section 1895 of the Social 
Security Act (42 U.S.C. 1395fff). Such study shall examine whether 
systematic differences in payment margins are related to differences in 
case mix (as measured by home health resource groups (HHRGs)) among 
such agencies. The study shall use the partial or full-year cost 
reports filed by home health agencies.
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Commission shall submit to Congress a report on the 
study under subsection (a).

SEC. 605. CLARIFICATION OF TREATMENT OF OCCASIONAL ABSENCES IN 
              DETERMINING WHETHER AN INDIVIDUAL IS CONFINED TO THE 
              HOME.

    (a) In General.--The penultimate sentence of section 1814(a) (42 
U.S.C. 1395f(a) and the penultimate sentence of section 1835(a) (42 
U.S.C. 1395n(a)) are each amended to read as follows: ``Any other 
absence of an individual from the home shall not so disqualify the 
individual if the absence is infrequent or of relatively short 
duration, such as an occasional trip to the barber or a walk around the 
block, and is not inconsistent with the assessment underlying the 
individual's plan of care for home health services.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
take effect on the date of the enactment of this Act.

             Subtitle B--Direct Graduate Medical Education

SEC. 611. EXTENSION OF UPDATE LIMITATION ON HIGH COST PROGRAMS.

    Section 1886(h)(2)(D)(iv) (42 U.S.C. 1395ww(h)(2)(D)(iv)) is 
amended--
            (1) in subclause (I)--
                    (A) by striking ``and 2002'' and inserting 
                ``through 2012'';
                    (B) by striking ``during fiscal year 2001 or fiscal 
                year 2002'' and inserting ``during the period beginning 
                with fiscal year 2001 and ending with fiscal year 
                2012''; and
                    (C) by striking ``subject to subclause (III),'';
            (2) by striking subclause (II); and
            (3) in subclause (III)--
                    (A) by redesignating such subclause as subclause 
                (II); and
                    (B) by striking ``or (II)''.

SEC. 612. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

    (a) In General.--Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is 
amended--
            (1) in subparagraph (F)(i), by inserting ``subject to 
        subparagraph (I),'' after ``October 1, 1997,'';
            (2) in subparagraph (H)(i), by inserting ``subject to 
        subparagraph (I),'' after ``subparagraphs (F) and (G),''; and
            (3) by adding at the end the following new subparagraph:
                    ``(I) Redistribution of unused resident 
                positions.--
                            ``(i) Reduction in limit based on unused 
                        positions.--
                                    ``(I) In general.--If a hospital's 
                                resident level (as defined in clause 
                                (iii)(I)) is less than the otherwise 
                                applicable resident limit (as defined 
                                in clause (iii)(II)) for each of the 
                                reference periods (as defined in 
                                subclause (II)), effective for cost 
                                reporting periods beginning on or after 
                                January 1, 2003, the otherwise 
                                applicable resident limit shall be 
                                reduced by 75 percent of the difference 
                                between such limit and the reference 
                                resident level specified in subclause 
                                (III) (or subclause (IV) if 
                                applicable).
                                    ``(II) Reference periods defined.--
                                In this clause, the term `reference 
                                periods' means, for a hospital, the 3 
                                most recent consecutive cost reporting 
                                periods of the hospital for which cost 
                                reports have been settled (or, if not, 
                                submitted) on or before September 30, 
                                2001.
                                    ``(III) Reference resident level.--
                                Subject to subclause (IV), the 
                                reference resident level specified in 
                                this subclause for a hospital is the 
                                highest resident level for the hospital 
                                during any of the reference periods.
                                    ``(IV) Adjustment process.--Upon 
                                the timely request of a hospital, the 
                                Secretary may adjust the reference 
                                resident level for a hospital to be the 
                                resident level for the hospital for the 
                                cost reporting period that includes 
                                July 1, 2002.
                            ``(ii) Redistribution.--
                                    ``(I) In general.--The Secretary is 
                                authorized to increase the otherwise 
                                applicable resident limits for 
                                hospitals by an aggregate number 
                                estimated by the Secretary that does 
                                not exceed the aggregate reduction in 
                                such limits attributable to clause (i) 
                                (without taking into account any 
                                adjustment under subclause (IV) of such 
                                clause).
                                    ``(II) Effective date.--No increase 
                                under subclause (I) shall be permitted 
                                or taken into account for a hospital 
                                for any portion of a cost reporting 
                                period that occurs before July 1, 2003, 
                                or before the date of the hospital's 
                                application for an increase under this 
                                clause. No such increase shall be 
                                permitted for a hospital unless the 
                                hospital has applied to the Secretary 
                                for such increase by December 31, 2004.
                                    ``(III) Considerations in 
                                redistribution.--In determining for 
                                which hospitals the increase in the 
                                otherwise applicable resident limit is 
                                provided under subclause (I), the 
                                Secretary shall take into account the 
                                need for such an increase by specialty 
                                and location involved, consistent with 
                                subclause (IV).
                                    ``(IV) Priority for rural and small 
                                urban areas.--In determining for which 
                                hospitals and residency training 
                                programs an increase in the otherwise 
                                applicable resident limit is provided 
                                under subclause (I), the Secretary 
                                shall first distribute the increase to 
                                programs of hospitals located in rural 
                                areas or in urban areas that are not 
                                large urban areas (as defined for 
                                purposes of subsection (d)) on a first-
                                come-first-served basis (as determined 
                                by the Secretary) based on a 
                                demonstration that the hospital will 
                                fill the positions made available under 
                                this clause and not to exceed an 
                                increase of 25 full-time equivalent 
                                positions with respect to any hospital.
                                    ``(V) Application of locality 
                                adjusted national average per resident 
                                amount.--With respect to additional 
                                residency positions in a hospital 
                                attributable to the increase provided 
                                under this clause, notwithstanding any 
                                other provision of this subsection, the 
                                approved FTE resident amount is deemed 
                                to be equal to the locality adjusted 
                                national average per resident amount 
                                computed under subparagraph (E) for 
                                that hospital.
                                    ``(VI) Construction.--Nothing in 
                                this clause shall be construed as 
                                permitting the redistribution of 
                                reductions in residency positions 
                                attributable to voluntary reduction 
                                programs under paragraph (6) or as 
                                affecting the ability of a hospital to 
                                establish new medical residency 
                                training programs under subparagraph 
                                (H).
                            ``(iii) Resident level and limit defined.--
                        In this subparagraph:
                                    ``(I) Resident level.--The term 
                                `resident level' means, with respect to 
                                a hospital, the total number of full-
                                time equivalent residents, before the 
                                application of weighting factors (as 
                                determined under this paragraph), in 
                                the fields of allopathic and 
                                osteopathic medicine for the hospital.
                                    ``(II) Otherwise applicable 
                                resident limit.--The term `otherwise 
                                applicable resident limit' means, with 
                                respect to a hospital, the limit 
                                otherwise applicable under 
                                subparagraphs (F)(i) and (H) on the 
                                resident level for the hospital 
                                determined without regard to this 
                                subparagraph.''.
    (b) No Application of Increase to IME.--Section 1886(d)(5)(B)(v) 
(42 U.S.C. 1395ww(d)(5)(B)(v)) is amended by adding at the end the 
following: ``The provisions of clause (i) of subparagraph (I) of 
subsection (h)(4) shall apply with respect to the first sentence of 
this clause in the same manner as it applies with respect to 
subparagraph (F) of such subsection, but the provisions of clause (ii) 
of such subparagraph shall not apply.''.
    (c) Report on Extension of Applications Under Redistribution 
Program.--Not later than July 1, 2004, the Secretary shall submit to 
Congress a report containing recommendations regarding whether to 
extend the deadline for applications for an increase in resident limits 
under section 1886(h)(4)(I)(ii)(II) of the Social Security Act (as 
added by subsection (a)).

                      Subtitle C--Other Provisions

SEC. 621. MODIFICATIONS TO MEDICARE PAYMENT ADVISORY COMMISSION 
              (MEDPAC).

    (a) Examination of Budget Consequences.--Section 1805(b) (42 U.S.C. 
1395b-6(b)) is amended by adding at the end the following new 
paragraph:
            ``(8) Examination of budget consequences.--Before making 
        any recommendations, the Commission shall examine the budget 
        consequences of such recommendations, directly or through 
        consultation with appropriate expert entities.''.
    (b) Consideration of Efficient Provision of Services.--Section 
1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is amended by 
inserting ``the efficient provision of'' after ``expenditures for''.
    (c) Additional Reports.--
            (1) Data needs and sources.--The Medicare Payment Advisory 
        Commission shall conduct a study, and submit a report to 
        Congress by not later than June 1, 2003, on the need for 
        current data, and sources of current data available, to 
        determine the solvency and financial circumstances of hospitals 
        and other medicare providers of services. The Commission shall 
        examine data on uncompensated care, as well as the share of 
        uncompensated care accounted for by the expenses for treating 
        illegal aliens.
            (2) Use of tax-related returns.--Using return information 
        provided under Form 990 of the Internal Revenue Service, the 
        Commission shall submit to Congress, by not later than June 1, 
        2003, a report on the following:
                    (A) Investments and capital financing of hospitals 
                participating under the medicare program and related 
                foundations.
                    (B) Access to capital financing for private and for 
                not-for-profit hospitals.

SEC. 622. DEMONSTRATION PROJECT FOR DISEASE MANAGEMENT FOR CERTAIN 
              MEDICARE BENEFICIARIES WITH DIABETES.

    (a) In General.--The Secretary of Health and Human Services shall 
conduct a demonstration project under this section (in this section 
referred to as the ``project'') to demonstrate the impact on costs and 
health outcomes of applying disease management to certain medicare 
beneficiaries with diagnosed diabetes. In no case may the number of 
participants in the project exceed 30,000 at any time.
    (b) Voluntary Participation.--
            (1) Eligibility.--Medicare beneficiaries are eligible to 
        participate in the project only if--
                    (A) they are a member of a health disparity 
                population (as defined in section 485E(d) of the Public 
                Health Service Act), such as Hispanics;
                    (B) they meet specific medical criteria 
                demonstrating the appropriate diagnosis and the 
                advanced nature of their disease;
                    (C) their physicians approve of participation in 
                the project; and
                    (D) they are not enrolled in a Medicare+Choice 
                plan.
            (2) Benefits.--A medicare beneficiary who is enrolled in 
        the project shall be eligible--
                    (A) for disease management services related to 
                their diabetes; and
                    (B) for payment for all costs for prescription 
                drugs without regard to whether or not they relate to 
                the diabetes, except that the project may provide for 
                modest cost-sharing with respect to prescription drug 
                coverage.
    (c) Contracts With Disease Management Organizations.--
            (1) In general.--The Secretary of Health and Human Services 
        shall carry out the project through contracts with up to three 
        disease management organizations. The Secretary shall not enter 
        into such a contract with an organization unless the 
        organization demonstrates that it can produce improved health 
        outcomes and reduce aggregate medicare expenditures consistent 
        with paragraph (2).
            (2) Contract provisions.--Under such contracts--
                    (A) such an organization shall be required to 
                provide for prescription drug coverage described in 
                subsection (b)(2)(B);
                    (B) such an organization shall be paid a fee 
                negotiated and established by the Secretary in a manner 
                so that (taking into account savings in expenditures 
                under parts A and B of the medicare program under title 
                XVIII of the Social Security Act) there will be no net 
                increase, and to the extent practicable, there will be 
                a net reduction in expenditures under the medicare 
                program as a result of the project; and
                    (C) such an organization shall guarantee, through 
                an appropriate arrangement with a reinsurance company 
                or otherwise, the prohibition on net increases in 
                expenditures described in subparagraph (B).
            (3) Payments.--Payments to such organizations shall be made 
        in appropriate proportion from the Trust Funds established 
        under title XVIII of the Social Security Act.
    (d) Application of Medigap Protections to Demonstration Project 
Enrollees.--(1) Subject to paragraph (2), the provisions of section 
1882(s)(3) (other than clauses (i) through (iv) of subparagraph (B)) 
and 1882(s)(4) of the Social Security Act shall apply to enrollment 
(and termination of enrollment) in the demonstration project under this 
section, in the same manner as they apply to enrollment (and 
termination of enrollment) with a Medicare+Choice organization in a 
Medicare+Choice plan.
    (2) In applying paragraph (1)--
            (A) any reference in clause (v) or (vi) of section 
        1882(s)(3)(B) of such Act to 12 months is deemed a reference to 
        the period of the demonstration project; and
            (B) the notification required under section 1882(s)(3)(D) 
        of such Act shall be provided in a manner specified by the 
        Secretary of Health and Human Services.
    (e) Duration.--The project shall last for not longer than 3 years.
    (f) Waiver.--The Secretary of Health and Human Services shall waive 
such provisions of title XVIII of the Social Security Act as may be 
necessary to provide for payment for services under the project in 
accordance with subsection (c)(3).
    (g) Report.--The Secretary of Health and Human Services shall 
submit to Congress an interim report on the project not later than 2 
years after the date it is first implemented and a final report on the 
project not later than 6 months after the date of its completion. Such 
reports shall include information on the impact of the project on costs 
and health outcomes and recommendations on the cost-effectiveness of 
extending or expanding the project.
    (h) Working Group on Medicare Disease Management Programs.--The 
Secretary shall establish within the Department of Health and Human 
Services a working group consisting of employees of the Department to 
carry out the following:
            (1) To oversee the project.
            (2) To establish policy and criteria for medicare disease 
        management programs within the Department, including the 
        establishment of policy and criteria for such programs.
            (3) To identify targeted medical conditions and targeted 
        individuals.
            (4) To select areas in which such programs are carried out.
            (5) To monitor health outcomes under such programs.
            (6) To measure the effectiveness of such programs in 
        meeting any budget neutrality requirements.
            (7) Otherwise to serve as a central focal point within the 
        Department for dissemination of information on medicare disease 
        management programs.
    (i) GAO Study on Disease Management Programs.--The Comptroller 
General of the United States shall conduct a study that compares 
disease management programs under title XVIII of the Social Security 
Act with such programs conducted in the private sector, including the 
prevalence of such programs and programs for case management. The study 
shall identify the cost-effectiveness of such programs and any savings 
achieved by such programs. The Comptroller General shall submit a 
report on such study to Congress by not later than 18 months after the 
date of the enactment of this Act.

SEC. 623. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY CARE SERVICES.

    (a) Establishment.--Subject to the succeeding provisions of this 
section, the Secretary of Health and Human Services shall establish a 
demonstration project (in this section referred to as the 
``demonstration project'') under which the Secretary shall, as part of 
a plan of an episode of care for home health services established for a 
medicare beneficiary, permit a home health agency, directly or under 
arrangements with a medical adult day care facility, to provide medical 
adult day care services as a substitute for a portion of home health 
services that would otherwise be provided in the beneficiary's home.
    (b) Payment.--
            (1) In general.--The amount of payment for an episode of 
        care for home health services, a portion of which consists of 
        substitute medical adult day care services, under the 
        demonstration project shall be made at a rate equal to 95 
        percent of the amount that would otherwise apply for such home 
        health services under section 1895 of the Social Security Act 
        (42 u.s.c. 1395fff). In no case may a home health agency, or a 
        medical adult day care facility under arrangements with a home 
        health agency, separately charge a beneficiary for medical 
        adult day care services furnished under the plan of care.
            (2) Budget neutrality for demonstration project.--
        Notwithstanding any other provision of law, the Secretary shall 
        provide for an appropriate reduction in the aggregate amount of 
        additional payments made under section 1895 of the Social 
        Security Act (42 U.S.C. 1395fff) to reflect any increase in 
        amounts expended from the Trust Funds as a result of the 
        demonstration project conducted under this section.
    (c) Demonstration Project Sites.--The project established under 
this section shall be conducted in not more than 5 States selected by 
the Secretary that license or certify providers of services that 
furnish medical adult day care services.
    (d) Duration.--The Secretary shall conduct the demonstration 
project for a period of 3 years.
    (e) Voluntary Participation.--Participation of medicare 
beneficiaries in the demonstration project shall be voluntary. The 
total number of such beneficiaries that may participate in the project 
at any given time may not exceed 15,000.
    (f) Preference in Selecting Agencies.--In selecting home health 
agencies to participate under the demonstration project, the Secretary 
shall give preference to those agencies that are currently licensed or 
certified through common ownership and control to furnish medical adult 
day care services.
    (g) Waiver Authority.--The Secretary may waive such requirements of 
title XVIII of the Social Security Act as may be necessary for the 
purposes of carrying out the demonstration project, other than waiving 
the requirement that an individual be homebound in order to be eligible 
for benefits for home health services.
    (h) Evaluation and Report.--The Secretary shall conduct an 
evaluation of the clinical and cost effectiveness of the demonstration 
project. Not later 30 months after the commencement of the project, the 
Secretary shall submit to Congress a report on the evaluation, and 
shall include in the report the following:
            (1) An analysis of the patient outcomes and costs of 
        furnishing care to the medicare beneficiaries participating in 
        the project as compared to such outcomes and costs to 
        beneficiaries receiving only home health services for the same 
        health conditions.
            (2) Such recommendations regarding the extension, 
        expansion, or termination of the project as the Secretary 
        determines appropriate.
    (i) Definitions.--In this section:
            (1) Home health agency.--The term ``home health agency'' 
        has the meaning given such term in section 1861(o) of the 
        Social Security Act (42 U.S.C. 1395x(o)).
            (2) Medical adult day care facility.--The term ``medical 
        adult day care facility'' means a facility that--
                    (A) has been licensed or certified by a State to 
                furnish medical adult day care services in the State 
                for a continuous 2-year period;
                    (B) is engaged in providing skilled nursing 
                services and other therapeutic services directly or 
                under arrangement with a home health agency;
                    (C) meets such standards established by the 
                Secretary to assure quality of care and such other 
                requirements as the Secretary finds necessary in the 
                interest of the health and safety of individuals who 
                are furnished services in the facility; and
                    (D) provides medical adult day care services.
            (3) Medical adult day care services.--The term ``medical 
        adult day care services'' means--
                    (A) home health service items and services 
                described in paragraphs (1) through (7) of section 
                1861(m) furnished in a medical adult day care facility;
                    (B) a program of supervised activities furnished in 
                a group setting in the facility that--
                            (i) meet such criteria as the Secretary 
                        determines appropriate; and
                            (ii) is designed to promote physical and 
                        mental health of the individuals; and
                    (C) such other services as the Secretary may 
                specify.
            (4) Medicare beneficiary.--The term ``medicare 
        beneficiary'' means an individual entitled to benefits under 
        part A of this title, enrolled under part B of this title, or 
        both.

SEC. 624. PUBLICATION ON FINAL WRITTEN GUIDANCE CONCERNING PROHIBITIONS 
              AGAINST DISCRIMINATION BY NATIONAL ORIGIN WITH RESPECT TO 
              HEALTH CARE SERVICES.

    Not later than January 1, 2003, the Secretary shall issue final 
written guidance concerning the application of the prohibition in title 
VI of the Civil Rights Act of 1964 against national origin 
discrimination as it affects persons with limited English proficiency 
with respect to access to health care services under the medicare 
program.

              TITLE VII--MEDICARE BENEFITS ADMINISTRATION

SEC. 701. ESTABLISHMENT OF MEDICARE BENEFITS ADMINISTRATION.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended 
by section 105, is amended by inserting after 1806 the following new 
section:

                   ``medicare benefits administration

    ``Sec. 1808. (a) Establishment.--There is established within the 
Department of Health and Human Services an agency to be known as the 
Medicare Benefits Administration.
    ``(b) Administrator; Deputy Administrator; Chief Actuary.--
            ``(1) Administrator.--
                    ``(A) In general.--The Medicare Benefits 
                Administration shall be headed by an administrator to 
                be known as the `Medicare Benefits Administrator' (in 
                this section referred to as the `Administrator') who 
                shall be appointed by the President, by and with the 
                advice and consent of the Senate. The Administrator 
                shall be in direct line of authority to the Secretary.
                    ``(B) Compensation.--The Administrator shall be 
                paid at the rate of basic pay payable for level III of 
                the Executive Schedule under section 5314 of title 5, 
                United States Code.
                    ``(C) Term of office.--The Administrator shall be 
                appointed for a term of 5 years. In any case in which a 
                successor does not take office at the end of an 
                Administrator's term of office, that Administrator may 
                continue in office until the entry upon office of such 
                a successor. An Administrator appointed to a term of 
                office after the commencement of such term may serve 
                under such appointment only for the remainder of such 
                term.
                    ``(D) General authority.--The Administrator shall 
                be responsible for the exercise of all powers and the 
                discharge of all duties of the Administration, and 
                shall have authority and control over all personnel and 
                activities thereof.
                    ``(E) Rulemaking authority.--The Administrator may 
                prescribe such rules and regulations as the 
                Administrator determines necessary or appropriate to 
                carry out the functions of the Administration. The 
                regulations prescribed by the Administrator shall be 
                subject to the rulemaking procedures established under 
                section 553 of title 5, United States Code.
                    ``(F) Authority to establish organizational 
                units.--The Administrator may establish, alter, 
                consolidate, or discontinue such organizational units 
                or components within the Administration as the 
                Administrator considers necessary or appropriate, 
                except as specified in this section.
                    ``(G) Authority to delegate.--The Administrator may 
                assign duties, and delegate, or authorize successive 
                redelegations of, authority to act and to render 
                decisions, to such officers and employees of the 
                Administration as the Administrator may find necessary. 
                Within the limitations of such delegations, 
                redelegations, or assignments, all official acts and 
                decisions of such officers and employees shall have the 
                same force and effect as though performed or rendered 
                by the Administrator.
            ``(2) Deputy administrator.--
                    ``(A) In general.--There shall be a Deputy 
                Administrator of the Medicare Benefits Administration 
                who shall be appointed by the President, by and with 
                the advice and consent of the Senate.
                    ``(B) Compensation.--The Deputy Administrator shall 
                be paid at the rate of basic pay payable for level IV 
                of the Executive Schedule under section 5315 of title 
                5, United States Code.
                    ``(C) Term of office.--The Deputy Administrator 
                shall be appointed for a term of 5 years. In any case 
                in which a successor does not take office at the end of 
                a Deputy Administrator's term of office, such Deputy 
                Administrator may continue in office until the entry 
                upon office of such a successor. A Deputy Administrator 
                appointed to a term of office after the commencement of 
                such term may serve under such appointment only for the 
                remainder of such term.
                    ``(D) Duties.--The Deputy Administrator shall 
                perform such duties and exercise such powers as the 
                Administrator shall from time to time assign or 
                delegate. The Deputy Administrator shall be Acting 
                Administrator of the Administration during the absence 
                or disability of the Administrator and, unless the 
                President designates another officer of the Government 
                as Acting Administrator, in the event of a vacancy in 
                the office of the Administrator.
            ``(3) Chief actuary.--
                    ``(A) In general.--There is established in the 
                Administration the position of Chief Actuary. The Chief 
                Actuary shall be appointed by, and in direct line of 
                authority to, the Administrator of such Administration. 
                The Chief Actuary shall be appointed from among 
                individuals who have demonstrated, by their education 
                and experience, superior expertise in the actuarial 
                sciences. The Chief Actuary may be removed only for 
                cause.
                    ``(B) Compensation.--The Chief Actuary shall be 
                compensated at the highest rate of basic pay for the 
                Senior Executive Service under section 5382(b) of title 
                5, United States Code.
                    ``(C) Duties.--The Chief Actuary shall exercise 
                such duties as are appropriate for the office of the 
                Chief Actuary and in accordance with professional 
                standards of actuarial independence.
            ``(4) Secretarial coordination of program administration.--
        The Secretary shall ensure appropriate coordination between the 
        Administrator and the Administrator of the Centers for Medicare 
        & Medicaid Services in carrying out the programs under this 
        title.
    ``(c) Duties; Administrative Provisions.--
            ``(1) Duties.--
                    ``(A) General duties.--The Administrator shall 
                carry out parts C and D, including--
                            ``(i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare+Choice plans under part C, 
                        including the offering of qualified 
                        prescription drug coverage under such plans; 
                        and
                            ``(ii) negotiating, entering into, and 
                        enforcing, contracts with PDP sponsors for the 
                        offering of prescription drug plans under part 
                        D.
                    ``(B) Other duties.--The Administrator shall carry 
                out any duty provided for under part C or part D, 
                including demonstration projects carried out in part or 
                in whole under such parts, the programs of all-
                inclusive care for the elderly (PACE program) under 
                section 1894, the social health maintenance 
                organization (SHMO) demonstration projects (referred to 
                in section 4104(c) of the Balanced Budget Act of 1997), 
                and through a Medicare+Choice project that demonstrates 
                the application of capitation payment rates for frail 
                elderly medicare beneficiaries through the use of a 
                interdisciplinary team and through the provision of 
                primary care services to such beneficiaries by means of 
                such a team at the nursing facility involved).
                    ``(C) Prescription drug card.--The Administrator 
                shall carry out section 1807 (relating to the medicare 
                prescription drug discount card endorsement program).
                    ``(D) Noninterference.--In carrying out its duties 
                with respect to the provision of qualified prescription 
                drug coverage to beneficiaries under this title, the 
                Administrator may not--
                            ``(i) require a particular formulary or 
                        institute a price structure for the 
                        reimbursement of covered outpatient drugs;
                            ``(ii) interfere in any way with 
                        negotiations between PDP sponsors and 
                        Medicare+Choice organizations and drug 
                        manufacturers, wholesalers, or other suppliers 
                        of covered outpatient drugs; and
                            ``(iii) otherwise interfere with the 
                        competitive nature of providing such coverage 
                        through such sponsors and organizations.
                    ``(E) Annual reports.--Not later March 31 of each 
                year, the Administrator shall submit to Congress and 
                the President a report on the administration of parts C 
                and D during the previous fiscal year.
            ``(2) Staff.--
                    ``(A) In general.--The Administrator, with the 
                approval of the Secretary, may employ, without regard 
                to chapter 31 of title 5, United States Code, other 
                than sections 3110 and 3112, such officers and 
                employees as are necessary to administer the activities 
                to be carried out through the Medicare Benefits 
                Administration. The Administrator shall employ staff 
                with appropriate and necessary expertise in negotiating 
                contracts in the private sector.
                    ``(B) Flexibility with respect to compensation.--
                            ``(i) In general.--The staff of the 
                        Medicare Benefits Administration shall, subject 
                        to clause (ii), be paid without regard to the 
                        provisions of chapter 51 (other than section 
                        5101) and chapter 53 (other than section 5301) 
                        of such title (relating to classification and 
                        schedule pay rates).
                            ``(ii) Maximum rate.--In no case may the 
                        rate of compensation determined under clause 
                        (i) exceed the rate of basic pay payable for 
                        level IV of the Executive Schedule under 
                        section 5315 of title 5, United States Code.
                    ``(C) Limitation on full-time equivalent staffing 
                for current cms functions being transferred.--The 
                Administrator may not employ under this paragraph a 
                number of full-time equivalent employees, to carry out 
                functions that were previously conducted by the Centers 
                for Medicare & Medicaid Services and that are conducted 
                by the Administrator by reason of this section, that 
                exceeds the number of such full-time equivalent 
                employees authorized to be employed by the Centers for 
                Medicare & Medicaid Services to conduct such functions 
                as of the date of the enactment of this Act.
            ``(3) Redelegation of certain functions of the centers for 
        medicare & medicaid services.--
                    ``(A) In general.--The Secretary, the 
                Administrator, and the Administrator of the Centers for 
                Medicare & Medicaid Services shall establish an 
                appropriate transition of responsibility in order to 
                redelegate the administration of part C from the 
                Secretary and the Administrator of the Centers for 
                Medicare & Medicaid Services to the Administrator as is 
                appropriate to carry out the purposes of this section.
                    ``(B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator of the 
                Centers for Medicare & Medicaid Services transfers to 
                the Administrator of the Medicare Benefits 
                Administration such information and data in the 
                possession of the Administrator of the Centers for 
                Medicare & Medicaid Services as the Administrator of 
                the Medicare Benefits Administration requires to carry 
                out the duties described in paragraph (1).
                    ``(C) Construction.--Insofar as a responsibility of 
                the Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services is redelegated to the 
                Administrator under this section, any reference to the 
                Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services in this title or title XI 
                with respect to such responsibility is deemed to be a 
                reference to the Administrator.
    ``(d) Office of Beneficiary Assistance.--
            ``(1) Establishment.--The Secretary shall establish within 
        the Medicare Benefits Administration an Office of Beneficiary 
        Assistance to coordinate functions relating to outreach and 
        education of medicare beneficiaries under this title, including 
        the functions described in paragraph (2). The Office shall be 
        separate operating division within the Administration.
            ``(2) Dissemination of information on benefits and appeals 
        rights.--
                    ``(A) Dissemination of benefits information.--The 
                Office of Beneficiary Assistance shall disseminate, 
                directly or through contract, to medicare 
                beneficiaries, by mail, by posting on the Internet site 
                of the Medicare Benefits Administration and through a 
                toll-free telephone number, information with respect to 
                the following:
                            ``(i) Benefits, and limitations on payment 
                        (including cost-sharing, stop-loss provisions, 
                        and formulary restrictions) under parts C and 
                        D.
                            ``(ii) Benefits, and limitations on payment 
                        under parts A and B, including information on 
                        medicare supplemental policies under section 
                        1882.
                Such information shall be presented in a manner so that 
                medicare beneficiaries may compare benefits under parts 
                A, B, D, and medicare supplemental policies with 
                benefits under Medicare+Choice plans under part C.
                    ``(B) Dissemination of appeals rights 
                information.--The Office of Beneficiary Assistance 
                shall disseminate to medicare beneficiaries in the 
                manner provided under subparagraph (A) a description of 
                procedural rights (including grievance and appeals 
                procedures) of beneficiaries under the original 
                medicare fee-for-service program under parts A and B, 
                the Medicare+Choice program under part C, and the 
                Voluntary Prescription Drug Benefit Program under part 
                D.
    ``(e) Medicare Policy Advisory Board.--
            ``(1) Establishment.--There is established within the 
        Medicare Benefits Administration the Medicare Policy Advisory 
        Board (in this section referred to the `Board'). The Board 
        shall advise, consult with, and make recommendations to the 
        Administrator of the Medicare Benefits Administration with 
        respect to the administration of parts C and D, including the 
        review of payment policies under such parts.
            ``(2) Reports.--
                    ``(A) In general.--With respect to matters of the 
                administration of parts C and D, the Board shall submit 
                to Congress and to the Administrator of the Medicare 
                Benefits Administration such reports as the Board 
                determines appropriate. Each such report may contain 
                such recommendations as the Board determines 
                appropriate for legislative or administrative changes 
                to improve the administration of such parts, including 
                the topics described in subparagraph (B). Each such 
                report shall be published in the Federal Register.
                    ``(B) Topics described.--Reports required under 
                subparagraph (A) may include the following topics:
                            ``(i) Fostering competition.--
                        Recommendations or proposals to increase 
                        competition under parts C and D for services 
                        furnished to medicare beneficiaries.
                            ``(ii) Education and enrollment.--
                        Recommendations for the improvement to efforts 
                        to provide medicare beneficiaries information 
                        and education on the program under this title, 
                        and specifically parts C and D, and the program 
                        for enrollment under the title.
                            ``(iii) Implementation of risk-
                        adjustment.--Evaluation of the implementation 
                        under section 1853(a)(3)(C) of the risk 
                        adjustment methodology to payment rates under 
                        that section to Medicare+Choice organizations 
                        offering Medicare+Choice plans that accounts 
                        for variations in per capita costs based on 
                        health status and other demographic factors.
                            ``(iv) Disease management programs.--
                        Recommendations on the incorporation of disease 
                        management programs under parts C and D.
                            ``(v) Rural access.--Recommendations to 
                        improve competition and access to plans under 
                        parts C and D in rural areas.
                    ``(C) Maintaining independence of board.--The Board 
                shall directly submit to Congress reports required 
                under subparagraph (A). No officer or agency of the 
                United States may require the Board to submit to any 
                officer or agency of the United States for approval, 
                comments, or review, prior to the submission to 
                Congress of such reports.
            ``(3) Duty of administrator of medicare benefits 
        administration.--With respect to any report submitted by the 
        Board under paragraph (2)(A), not later than 90 days after the 
        report is submitted, the Administrator of the Medicare Benefits 
        Administration shall submit to Congress and the President an 
        analysis of recommendations made by the Board in such report. 
        Each such analysis shall be published in the Federal Register.
            ``(4) Membership.--
                    ``(A) Appointment.--Subject to the succeeding 
                provisions of this paragraph, the Board shall consist 
                of seven members to be appointed as follows:
                            ``(i) Three members shall be appointed by 
                        the President.
                            ``(ii) Two members shall be appointed by 
                        the Speaker of the House of Representatives, 
                        with the advice of the chairmen and the ranking 
                        minority members of the Committees on Ways and 
                        Means and on Energy and Commerce of the House 
                        of Representatives.
                            ``(iii) Two members shall be appointed by 
                        the President pro tempore of the Senate with 
                        the advice of the chairman and the ranking 
                        minority member of the Senate Committee on 
                        Finance.
                    ``(B) Qualifications.--The members shall be chosen 
                on the basis of their integrity, impartiality, and good 
                judgment, and shall be individuals who are, by reason 
                of their education and experience in health care 
                benefits management, exceptionally qualified to perform 
                the duties of members of the Board.
                    ``(C) Prohibition on inclusion of federal 
                employees.--No officer or employee of the United States 
                may serve as a member of the Board.
            ``(5) Compensation.--Members of the Board shall receive, 
        for each day (including travel time) they are engaged in the 
        performance of the functions of the board, compensation at 
        rates not to exceed the daily equivalent to the annual rate in 
        effect for level IV of the Executive Schedule under section 
        5315 of title 5, United States Code.
            ``(6) Terms of office.--
                    ``(A) In general.--The term of office of members of 
                the Board shall be 3 years.
                    ``(B) Terms of initial appointees.--As designated 
                by the President at the time of appointment, of the 
                members first appointed--
                            ``(i) one shall be appointed for a term of 
                        1 year;
                            ``(ii) three shall be appointed for terms 
                        of 2 years; and
                            ``(iii) three shall be appointed for terms 
                        of 3 years.
                    ``(C) Reappointments.--Any person appointed as a 
                member of the Board may not serve for more than 8 
                years.
                    ``(D) Vacancy.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Board shall be filled in the manner in which the 
                original appointment was made.
            ``(7) Chair.--The Chair of the Board shall be elected by 
        the members. The term of office of the Chair shall be 3 years.
            ``(8) Meetings.--The Board shall meet at the call of the 
        Chair, but in no event less than three times during each fiscal 
        year.
            ``(9) Director and staff.--
                    ``(A) Appointment of director.--The Board shall 
                have a Director who shall be appointed by the Chair.
                    ``(B) In general.--With the approval of the Board, 
                the Director may appoint, without regard to chapter 31 
                of title 5, United States Code, such additional 
                personnel as the Director considers appropriate.
                    ``(C) Flexibility with respect to compensation.--
                            ``(i) In general.--The Director and staff 
                        of the Board shall, subject to clause (ii), be 
                        paid without regard to the provisions of 
                        chapter 51 and chapter 53 of such title 
                        (relating to classification and schedule pay 
                        rates).
                            ``(ii) Maximum rate.--In no case may the 
                        rate of compensation determined under clause 
                        (i) exceed the rate of basic pay payable for 
                        level IV of the Executive Schedule under 
                        section 5315 of title 5, United States Code.
                    ``(D) Assistance from the administrator of the 
                medicare benefits administration.--The Administrator of 
                the Medicare Benefits Administration shall make 
                available to the Board such information and other 
                assistance as it may require to carry out its 
                functions.
            ``(10) Contract authority.--The Board may contract with and 
        compensate government and private agencies or persons to carry 
        out its duties under this subsection, without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5).
    ``(f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund and 
from the Federal Supplementary Medical Insurance Trust Fund (including 
the Medicare Prescription Drug Account), such sums as are necessary to 
carry out this section.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        take effect on the date of the enactment of this Act.
            (2) Timing of initial appointments.--The Administrator and 
        Deputy Administrator of the Medicare Benefits Administration 
        may not be appointed before March 1, 2003.
            (3) Duties with respect to eligibility determinations and 
        enrollment.--The Administrator of the Medicare Benefits 
        Administration shall carry out enrollment under title XVIII of 
        the Social Security Act, make eligibility determinations under 
        such title, and carry out part C of such title for years 
        beginning or after January 1, 2005.
            (4) Transition.--Before the date the Administrator of the 
        Medicare Benefits Administration is appointed and assumes 
        responsibilities under this section and section 1807 of the 
        Social Security Act, the Secretary of Health and Human Services 
        shall provide for the conduct of any responsibilities of such 
        Administrator that are otherwise provided under law.
    (c) Miscellaneous Administrative Provisions.--
            (1) Administrator as member of the board of trustees of the 
        medicare trust funds.--Section 1817(b) and section 1841(b) (42 
        U.S.C. 1395i(b), 1395t(b)) are each amended by striking ``and 
        the Secretary of Health and Human Services, all ex officio,'' 
        and inserting ``the Secretary of Health and Human Services, and 
        the Administrator of the Medicare Benefits Administration, all 
        ex officio,''.
            (2) Increase in grade to executive level iii for the 
        administrator of the centers for medicare & medicaid services; 
        level for medicare benefits administrator.--
                    (A) In general.--Section 5314 of title 5, United 
                States Code, by adding at the end the following:
            ``Administrator of the Centers for Medicare & Medicaid 
        Services.
            ``Administrator of the Medicare Benefits Administration.''.
                    (B) Conforming amendment.--Section 5315 of such 
                title is amended by striking ``Administrator of the 
                Health Care Financing Administration.''.
                    (C) Effective date.--The amendments made by this 
                paragraph take effect on January 1, 2003.

        TITLE VIII--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

SEC. 801. CONSTRUCTION; DEFINITION OF SUPPLIER.

    (a) Construction.--Nothing in this title shall be construed--
            (1) to compromise or affect existing legal remedies for 
        addressing fraud or abuse, whether it be criminal prosecution, 
        civil enforcement, or administrative remedies, including under 
        sections 3729 through 3733 of title 31, United States Code 
        (known as the False Claims Act); or
            (2) to prevent or impede the Department of Health and Human 
        Services in any way from its ongoing efforts to eliminate 
        waste, fraud, and abuse in the medicare program.
Furthermore, the consolidation of medicare administrative contracting 
set forth in this Act does not constitute consolidation of the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary Medical 
Insurance Trust Fund or reflect any position on that issue.
    (b) Definition of Supplier.--Section 1861 (42 U.S.C. 1395x) is 
amended by inserting after subsection (c) the following new subsection:

                               ``Supplier

    ``(d) The term `supplier' means, unless the context otherwise 
requires, a physician or other practitioner, a facility, or other 
entity (other than a provider of services) that furnishes items or 
services under this title.''.

SEC. 802. ISSUANCE OF REGULATIONS.

    (a) Consolidation of Promulgation to Once a Month.--
            (1) In general.--Section 1871 (42 U.S.C. 1395hh) is amended 
        by adding at the end the following new subsection:
    ``(d)(1) Subject to paragraph (2), the Secretary shall issue 
proposed or final (including interim final) regulations to carry out 
this title only on one business day of every month.
    ``(2) The Secretary may issue a proposed or final regulation 
described in paragraph (1) on any other day than the day described in 
paragraph (1) if the Secretary--
            ``(A) finds that issuance of such regulation on another day 
        is necessary to comply with requirements under law; or
            ``(B) finds that with respect to that regulation the 
        limitation of issuance on the date described in paragraph (1) 
        is contrary to the public interest.
If the Secretary makes a finding under this paragraph, the Secretary 
shall include such finding, and brief statement of the reasons for such 
finding, in the issuance of such regulation.
    ``(3) The Secretary shall coordinate issuance of new regulations 
described in paragraph (1) relating to a category of provider of 
services or suppliers based on an analysis of the collective impact of 
regulatory changes on that category of providers or suppliers.''.
            (2) GAO report on publication of regulations on a quarterly 
        basis.--Not later than 3 years after the date of the enactment 
        of this Act, the Comptroller General of the United States shall 
        submit to Congress a report on the feasibility of requiring 
        that regulations described in section 1871(d) of the Social 
        Security Act be promulgated on a quarterly basis rather than on 
        a monthly basis.
            (3) Effective date.--The amendment made by paragraph (1) 
        shall apply to regulations promulgated on or after the date 
        that is 30 days after the date of the enactment of this Act.
    (b) Regular Timeline for Publication of Final Rules.--
            (1) In general.--Section 1871(a) (42 U.S.C. 1395hh(a)) is 
        amended by adding at the end the following new paragraph:
    ``(3)(A) The Secretary, in consultation with the Director of the 
Office of Management and Budget, shall establish and publish a regular 
timeline for the publication of final regulations based on the previous 
publication of a proposed regulation or an interim final regulation.
    ``(B) Such timeline may vary among different regulations based on 
differences in the complexity of the regulation, the number and scope 
of comments received, and other relevant factors, but shall not be 
longer than 3 years except under exceptional circumstances. If the 
Secretary intends to vary such timeline with respect to the publication 
of a final regulation, the Secretary shall cause to have published in 
the Federal Register notice of the different timeline by not later than 
the timeline previously established with respect to such regulation. 
Such notice shall include a brief explanation of the justification for 
such variation.
    ``(C) In the case of interim final regulations, upon the expiration 
of the regular timeline established under this paragraph for the 
publication of a final regulation after opportunity for public comment, 
the interim final regulation shall not continue in effect unless the 
Secretary publishes (at the end of the regular timeline and, if 
applicable, at the end of each succeeding 1-year period) a notice of 
continuation of the regulation that includes an explanation of why the 
regular timeline (and any subsequent 1-year extension) was not complied 
with. If such a notice is published, the regular timeline (or such 
timeline as previously extended under this paragraph) for publication 
of the final regulation shall be treated as having been extended for 1 
additional year.
    ``(D) The Secretary shall annually submit to Congress a report that 
describes the instances in which the Secretary failed to publish a 
final regulation within the applicable regular timeline under this 
paragraph and that provides an explanation for such failures.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act. The 
        Secretary shall provide for an appropriate transition to take 
        into account the backlog of previously published interim final 
        regulations.
    (c) Limitations on New Matter in Final Regulations.--
            (1) In general.--Section 1871(a) (42 U.S.C. 1395hh(a)), as 
        amended by subsection (b), is further amended by adding at the 
        end the following new paragraph:
    ``(4) If the Secretary publishes notice of proposed rulemaking 
relating to a regulation (including an interim final regulation), 
insofar as such final regulation includes a provision that is not a 
logical outgrowth of such notice of proposed rulemaking, that provision 
shall be treated as a proposed regulation and shall not take effect 
until there is the further opportunity for public comment and a 
publication of the provision again as a final regulation.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to final regulations published on or after the date 
        of the enactment of this Act.

SEC. 803. COMPLIANCE WITH CHANGES IN REGULATIONS AND POLICIES.

    (a) No Retroactive Application of Substantive Changes.--
            (1) In general.--Section 1871 (42 U.S.C. 1395hh), as 
        amended by section 802(a), is amended by adding at the end the 
        following new subsection:
    ``(e)(1)(A) A substantive change in regulations, manual 
instructions, interpretative rules, statements of policy, or guidelines 
of general applicability under this title shall not be applied (by 
extrapolation or otherwise) retroactively to items and services 
furnished before the effective date of the change, unless the Secretary 
determines that--
            ``(i) such retroactive application is necessary to comply 
        with statutory requirements; or
            ``(ii) failure to apply the change retroactively would be 
        contrary to the public interest.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to substantive changes issued on or after the date 
        of the enactment of this Act.
    (b) Timeline for Compliance With Substantive Changes After 
Notice.--
            (1) In general.--Section 1871(e)(1), as added by subsection 
        (a), is amended by adding at the end the following:
    ``(B)(i) Except as provided in clause (ii), a substantive change 
referred to in subparagraph (A) shall not become effective before the 
end of the 30-day period that begins on the date that the Secretary has 
issued or published, as the case may be, the substantive change.
    ``(ii) The Secretary may provide for such a substantive change to 
take effect on a date that precedes the end of the 30-day period under 
clause (i) if the Secretary finds that waiver of such 30-day period is 
necessary to comply with statutory requirements or that the application 
of such 30-day period is contrary to the public interest. If the 
Secretary provides for an earlier effective date pursuant to this 
clause, the Secretary shall include in the issuance or publication of 
the substantive change a finding described in the first sentence, and a 
brief statement of the reasons for such finding.
    ``(C) No action shall be taken against a provider of services or 
supplier with respect to noncompliance with such a substantive change 
for items and services furnished before the effective date of such a 
change.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to compliance actions undertaken on or after the 
        date of the enactment of this Act.
    (c) Reliance on Guidance.--
            (1) In general.--Section 1871(e), as added by subsection 
        (a), is further amended by adding at the end the following new 
        paragraph:
    ``(2)(A) If--
            ``(i) a provider of services or supplier follows the 
        written guidance (which may be transmitted electronically) 
        provided by the Secretary or by a medicare contractor (as 
        defined in section 1889(g)) acting within the scope of the 
        contractor's contract authority, with respect to the furnishing 
        of items or services and submission of a claim for benefits for 
        such items or services with respect to such provider or 
        supplier;
            ``(ii) the Secretary determines that the provider of 
        services or supplier has accurately presented the circumstances 
        relating to such items, services, and claim to the contractor 
        in writing; and
            ``(iii) the guidance was in error;
the provider of services or supplier shall not be subject to any 
sanction (including any penalty or requirement for repayment of any 
amount) if the provider of services or supplier reasonably relied on 
such guidance.
    ``(B) Subparagraph (A) shall not be construed as preventing the 
recoupment or repayment (without any additional penalty) relating to an 
overpayment insofar as the overpayment was solely the result of a 
clerical or technical operational error.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act but 
        shall not apply to any sanction for which notice was provided 
        on or before the date of the enactment of this Act.

SEC. 804. REPORTS AND STUDIES RELATING TO REGULATORY REFORM.

    (a) GAO Study on Advisory Opinion Authority.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study to determine the feasibility and 
        appropriateness of establishing in the Secretary authority to 
        provide legally binding advisory opinions on appropriate 
        interpretation and application of regulations to carry out the 
        medicare program under title XVIII of the Social Security Act. 
        Such study shall examine the appropriate timeframe for issuing 
        such advisory opinions, as well as the need for additional 
        staff and funding to provide such opinions.
            (2) Report.--The Comptroller General shall submit to 
        Congress a report on the study conducted under paragraph (1) by 
        not later than January 1, 2004.
    (b) Report on Legal and Regulatory Inconsistencies.--Section 1871 
(42 U.S.C. 1395hh), as amended by section 803(a), is amended by adding 
at the end the following new subsection:
    ``(f)(1) Not later than 2 years after the date of the enactment of 
this subsection, and every 2 years thereafter, the Secretary shall 
submit to Congress a report with respect to the administration of this 
title and areas of inconsistency or conflict among the various 
provisions under law and regulation.
    ``(2) In preparing a report under paragraph (1), the Secretary 
shall collect--
            ``(A) information from individuals entitled to benefits 
        under part A or enrolled under part B, or both, providers of 
        services, and suppliers and from the Medicare Beneficiary 
        Ombudsman and the Medicare Provider Ombudsman with respect to 
        such areas of inconsistency and conflict; and
            ``(B) information from medicare contractors that tracks the 
        nature of written and telephone inquiries.
    ``(3) A report under paragraph (1) shall include a description of 
efforts by the Secretary to reduce such inconsistency or conflicts, and 
recommendations for legislation or administrative action that the 
Secretary determines appropriate to further reduce such inconsistency 
or conflicts.''.

                     Subtitle B--Contracting Reform

SEC. 811. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

    (a) Consolidation and Flexibility in Medicare Administration.--
            (1) In general.--Title XVIII is amended by inserting after 
        section 1874 the following new section:

          ``contracts with medicare administrative contractors

    ``Sec. 1874A. (a) Authority.--
            ``(1) Authority to enter into contracts.--The Secretary may 
        enter into contracts with any eligible entity to serve as a 
        medicare administrative contractor with respect to the 
        performance of any or all of the functions described in 
        paragraph (4) or parts of those functions (or, to the extent 
        provided in a contract, to secure performance thereof by other 
        entities).
            ``(2) Eligibility of entities.--An entity is eligible to 
        enter into a contract with respect to the performance of a 
        particular function described in paragraph (4) only if--
                    ``(A) the entity has demonstrated capability to 
                carry out such function;
                    ``(B) the entity complies with such conflict of 
                interest standards as are generally applicable to 
                Federal acquisition and procurement;
                    ``(C) the entity has sufficient assets to 
                financially support the performance of such function; 
                and
                    ``(D) the entity meets such other requirements as 
                the Secretary may impose.
            ``(3) Medicare administrative contractor defined.--For 
        purposes of this title and title XI--
                    ``(A) In general.--The term `medicare 
                administrative contractor' means an agency, 
                organization, or other person with a contract under 
                this section.
                    ``(B) Appropriate medicare administrative 
                contractor.--With respect to the performance of a 
                particular function in relation to an individual 
                entitled to benefits under part A or enrolled under 
                part B, or both, a specific provider of services or 
                supplier (or class of such providers of services or 
                suppliers), the `appropriate' medicare administrative 
                contractor is the medicare administrative contractor 
                that has a contract under this section with respect to 
                the performance of that function in relation to that 
                individual, provider of services or supplier or class 
                of provider of services or supplier.
            ``(4) Functions described.--The functions referred to in 
        paragraphs (1) and (2) are payment functions, provider services 
        functions, and functions relating to services furnished to 
        individuals entitled to benefits under part A or enrolled under 
        part B, or both, as follows:
                    ``(A) Determination of payment amounts.--
                Determining (subject to the provisions of section 1878 
                and to such review by the Secretary as may be provided 
                for by the contracts) the amount of the payments 
                required pursuant to this title to be made to providers 
                of services, suppliers and individuals.
                    ``(B) Making payments.--Making payments described 
                in subparagraph (A) (including receipt, disbursement, 
                and accounting for funds in making such payments).
                    ``(C) Beneficiary education and assistance.--
                Providing education and outreach to individuals 
                entitled to benefits under part A or enrolled under 
                part B, or both, and providing assistance to those 
                individuals with specific issues, concerns or problems.
                    ``(D) Provider consultative services.--Providing 
                consultative services to institutions, agencies, and 
                other persons to enable them to establish and maintain 
                fiscal records necessary for purposes of this title and 
                otherwise to qualify as providers of services or 
                suppliers.
                    ``(E) Communication with providers.--Communicating 
                to providers of services and suppliers any information 
                or instructions furnished to the medicare 
                administrative contractor by the Secretary, and 
                facilitating communication between such providers and 
                suppliers and the Secretary.
                    ``(F) Provider education and technical 
                assistance.--Performing the functions relating to 
                provider education, training, and technical assistance.
                    ``(G) Additional functions.--Performing such other 
                functions as are necessary to carry out the purposes of 
                this title.
            ``(5) Relationship to mip contracts.--
                    ``(A) Nonduplication of duties.--In entering into 
                contracts under this section, the Secretary shall 
                assure that functions of medicare administrative 
                contractors in carrying out activities under parts A 
                and B do not duplicate activities carried out under the 
                Medicare Integrity Program under section 1893. The 
                previous sentence shall not apply with respect to the 
                activity described in section 1893(b)(5) (relating to 
                prior authorization of certain items of durable medical 
                equipment under section 1834(a)(15)).
                    ``(B) Construction.--An entity shall not be treated 
                as a medicare administrative contractor merely by 
                reason of having entered into a contract with the 
                Secretary under section 1893.
            ``(6) Application of federal acquisition regulation.--
        Except to the extent inconsistent with a specific requirement 
        of this title, the Federal Acquisition Regulation applies to 
        contracts under this title.
    ``(b) Contracting Requirements.--
            ``(1) Use of competitive procedures.--
                    ``(A) In general.--Except as provided in laws with 
                general applicability to Federal acquisition and 
                procurement or in subparagraph (B), the Secretary shall 
                use competitive procedures when entering into contracts 
                with medicare administrative contractors under this 
                section, taking into account performance quality as 
                well as price and other factors.
                    ``(B) Renewal of contracts.--The Secretary may 
                renew a contract with a medicare administrative 
                contractor under this section from term to term without 
                regard to section 5 of title 41, United States Code, or 
                any other provision of law requiring competition, if 
                the medicare administrative contractor has met or 
                exceeded the performance requirements applicable with 
                respect to the contract and contractor, except that the 
                Secretary shall provide for the application of 
                competitive procedures under such a contract not less 
                frequently than once every five years.
                    ``(C) Transfer of functions.--The Secretary may 
                transfer functions among medicare administrative 
                contractors consistent with the provisions of this 
                paragraph. The Secretary shall ensure that performance 
                quality is considered in such transfers. The Secretary 
                shall provide public notice (whether in the Federal 
                Register or otherwise) of any such transfer (including 
                a description of the functions so transferred, a 
                description of the providers of services and suppliers 
                affected by such transfer, and contact information for 
                the contractors involved).
                    ``(D) Incentives for quality.--The Secretary shall 
                provide incentives for medicare administrative 
                contractors to provide quality service and to promote 
                efficiency.
            ``(2) Compliance with requirements.--No contract under this 
        section shall be entered into with any medicare administrative 
        contractor unless the Secretary finds that such medicare 
        administrative contractor will perform its obligations under 
        the contract efficiently and effectively and will meet such 
        requirements as to financial responsibility, legal authority, 
        quality of services provided, and other matters as the 
        Secretary finds pertinent.
            ``(3) Performance requirements.--
                    ``(A) Development of specific performance 
                requirements.--In developing contract performance 
                requirements, the Secretary shall develop performance 
                requirements applicable to functions described in 
                subsection (a)(4).
                    ``(B) Consultation.-- In developing such 
                requirements, the Secretary may consult with providers 
                of services and suppliers, organizations representing 
                individuals entitled to benefits under part A or 
                enrolled under part B, or both, and organizations and 
                agencies performing functions necessary to carry out 
                the purposes of this section with respect to such 
                performance requirements.
                    ``(C) Inclusion in contracts.--All contractor 
                performance requirements shall be set forth in the 
                contract between the Secretary and the appropriate 
                medicare administrative contractor. Such performance 
                requirements--
                            ``(i) shall reflect the performance 
                        requirements developed under subparagraph (A), 
                        but may include additional performance 
                        requirements;
                            ``(ii) shall be used for evaluating 
                        contractor performance under the contract; and
                            ``(iii) shall be consistent with the 
                        written statement of work provided under the 
                        contract.
            ``(4) Information requirements.--The Secretary shall not 
        enter into a contract with a medicare administrative contractor 
        under this section unless the contractor agrees--
                    ``(A) to furnish to the Secretary such timely 
                information and reports as the Secretary may find 
                necessary in performing his functions under this title; 
                and
                    ``(B) to maintain such records and afford such 
                access thereto as the Secretary finds necessary to 
                assure the correctness and verification of the 
                information and reports under subparagraph (A) and 
                otherwise to carry out the purposes of this title.
            ``(5) Surety bond.--A contract with a medicare 
        administrative contractor under this section may require the 
        medicare administrative contractor, and any of its officers or 
        employees certifying payments or disbursing funds pursuant to 
        the contract, or otherwise participating in carrying out the 
        contract, to give surety bond to the United States in such 
        amount as the Secretary may deem appropriate.
    ``(c) Terms and Conditions.--
            ``(1) In general.--A contract with any medicare 
        administrative contractor under this section may contain such 
        terms and conditions as the Secretary finds necessary or 
        appropriate and may provide for advances of funds to the 
        medicare administrative contractor for the making of payments 
        by it under subsection (a)(4)(B).
            ``(2) Prohibition on mandates for certain data 
        collection.--The Secretary may not require, as a condition of 
        entering into, or renewing, a contract under this section, that 
        the medicare administrative contractor match data obtained 
        other than in its activities under this title with data used in 
        the administration of this title for purposes of identifying 
        situations in which the provisions of section 1862(b) may 
        apply.
    ``(d) Limitation on Liability of Medicare Administrative 
Contractors and Certain Officers.--
            ``(1) Certifying officer.--No individual designated 
        pursuant to a contract under this section as a certifying 
        officer shall, in the absence of gross negligence or intent to 
        defraud the United States, be liable with respect to any 
        payments certified by the individual under this section.
            ``(2) Disbursing officer.--No disbursing officer shall, in 
        the absence of gross negligence or intent to defraud the United 
        States, be liable with respect to any payment by such officer 
        under this section if it was based upon an authorization (which 
        meets the applicable requirements for such internal controls 
        established by the Comptroller General) of a certifying officer 
        designated as provided in paragraph (1) of this subsection.
            ``(3) Liability of medicare administrative contractor.--No 
        medicare administrative contractor shall be liable to the 
        United States for a payment by a certifying or disbursing 
        officer unless in connection with such payment or in the 
        supervision of or selection of such officer the medicare 
        administrative contractor acted with gross negligence.
            ``(4) Indemnification by secretary.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (D), in the case of a medicare administrative 
                contractor (or a person who is a director, officer, or 
                employee of such a contractor or who is engaged by the 
                contractor to participate directly in the claims 
                administration process) who is made a party to any 
                judicial or administrative proceeding arising from or 
                relating directly to the claims administration process 
                under this title, the Secretary may, to the extent the 
                Secretary determines to be appropriate and as specified 
                in the contract with the contractor, indemnify the 
                contractor and such persons.
                    ``(B) Conditions.--The Secretary may not provide 
                indemnification under subparagraph (A) insofar as the 
                liability for such costs arises directly from conduct 
                that is determined by the judicial proceeding or by the 
                Secretary to be criminal in nature, fraudulent, or 
                grossly negligent. If indemnification is provided by 
                the Secretary with respect to a contractor before a 
                determination that such costs arose directly from such 
                conduct, the contractor shall reimburse the Secretary 
                for costs of indemnification.
                    ``(C) Scope of indemnification.--Indemnification by 
                the Secretary under subparagraph (A) may include 
                payment of judgments, settlements (subject to 
                subparagraph (D)), awards, and costs (including 
                reasonable legal expenses).
                    ``(D) Written approval for settlements.--A 
                contractor or other person described in subparagraph 
                (A) may not propose to negotiate a settlement or 
                compromise of a proceeding described in such 
                subparagraph without the prior written approval of the 
                Secretary to negotiate such settlement or compromise. 
                Any indemnification under subparagraph (A) with respect 
                to amounts paid under a settlement or compromise of a 
                proceeding described in such subparagraph are 
                conditioned upon prior written approval by the 
                Secretary of the final settlement or compromise.
                    ``(E) Construction.--Nothing in this paragraph 
                shall be construed--
                            ``(i) to change any common law immunity 
                        that may be available to a medicare 
                        administrative contractor or person described 
                        in subparagraph (A); or
                            ``(ii) to permit the payment of costs not 
                        otherwise allowable, reasonable, or allocable 
                        under the Federal Acquisition Regulations.''.
            (2) Consideration of incorporation of current law 
        standards.--In developing contract performance requirements 
        under section 1874A(b) of the Social Security Act, as inserted 
        by paragraph (1), the Secretary shall consider inclusion of the 
        performance standards described in sections 1816(f)(2) of such 
        Act (relating to timely processing of reconsiderations and 
        applications for exemptions) and section 1842(b)(2)(B) of such 
        Act (relating to timely review of determinations and fair 
        hearing requests), as such sections were in effect before the 
        date of the enactment of this Act.
    (b) Conforming Amendments to Section 1816 (Relating to Fiscal 
Intermediaries).--Section 1816 (42 U.S.C. 1395h) is amended as follows:
            (1) The heading is amended to read as follows:

        ``provisions relating to the administration of part a''.

            (2) Subsection (a) is amended to read as follows:
    ``(a) The administration of this part shall be conducted through 
contracts with medicare administrative contractors under section 
1874A.''.
            (3) Subsection (b) is repealed.
            (4) Subsection (c) is amended--
                    (A) by striking paragraph (1); and
                    (B) in each of paragraphs (2)(A) and (3)(A), by 
                striking ``agreement under this section'' and inserting 
                ``contract under section 1874A that provides for making 
                payments under this part''.
            (5) Subsections (d) through (i) are repealed.
            (6) Subsections (j) and (k) are each amended--
                    (A) by striking ``An agreement with an agency or 
                organization under this section'' and inserting ``A 
                contract with a medicare administrative contractor 
                under section 1874A with respect to the administration 
                of this part''; and
                    (B) by striking ``such agency or organization'' and 
                inserting ``such medicare administrative contractor'' 
                each place it appears.
            (7) Subsection (l) is repealed.
    (c) Conforming Amendments to Section 1842 (Relating to Carriers).--
Section 1842 (42 U.S.C. 1395u) is amended as follows:
            (1) The heading is amended to read as follows:

        ``provisions relating to the administration of part b''.

            (2) Subsection (a) is amended to read as follows:
    ``(a) The administration of this part shall be conducted through 
contracts with medicare administrative contractors under section 
1874A.''.
            (3) Subsection (b) is amended--
                    (A) by striking paragraph (1);
                    (B) in paragraph (2)--
                            (i) by striking subparagraphs (A) and (B);
                            (ii) in subparagraph (C), by striking 
                        ``carriers'' and inserting ``medicare 
                        administrative contractors''; and
                            (iii) by striking subparagraphs (D) and 
                        (E);
                    (C) in paragraph (3)--
                            (i) in the matter before subparagraph (A), 
                        by striking ``Each such contract shall provide 
                        that the carrier'' and inserting ``The 
                        Secretary'';
                            (ii) by striking ``will'' the first place 
                        it appears in each of subparagraphs (A), (B), 
                        (F), (G), (H), and (L) and inserting ``shall'';
                            (iii) in subparagraph (B), in the matter 
                        before clause (i), by striking ``to the 
                        policyholders and subscribers of the carrier'' 
                        and inserting ``to the policyholders and 
                        subscribers of the medicare administrative 
                        contractor'';
                            (iv) by striking subparagraphs (C), (D), 
                        and (E);
                            (v) in subparagraph (H)--
                                    (I) by striking ``if it makes 
                                determinations or payments with respect 
                                to physicians' services,'' in the 
                                matter preceding clause (i); and
                                    (II) by striking ``carrier'' and 
                                inserting ``medicare administrative 
                                contractor'' in clause (i);
                            (vi) by striking subparagraph (I);
                            (vii) in subparagraph (L), by striking the 
                        semicolon and inserting a period;
                            (viii) in the first sentence, after 
                        subparagraph (L), by striking ``and shall 
                        contain'' and all that follows through the 
                        period; and
                            (ix) in the seventh sentence, by inserting 
                        ``medicare administrative contractor,'' after 
                        ``carrier,''; and
                    (D) by striking paragraph (5);
                    (E) in paragraph (6)(D)(iv), by striking 
                ``carrier'' and inserting ``medicare administrative 
                contractor''; and
                    (F) in paragraph (7), by striking ``the carrier'' 
                and inserting ``the Secretary'' each place it appears.
            (4) Subsection (c) is amended--
                    (A) by striking paragraph (1);
                    (B) in paragraph (2)(A), by striking ``contract 
                under this section which provides for the disbursement 
                of funds, as described in subsection (a)(1)(B),'' and 
                inserting ``contract under section 1874A that provides 
                for making payments under this part'';
                    (C) in paragraph (3)(A), by striking ``subsection 
                (a)(1)(B)'' and inserting ``section 1874A(a)(3)(B)'';
                    (D) in paragraph (4), in the matter preceding 
                subparagraph (A), by striking ``carrier'' and inserting 
                ``medicare administrative contractor''; and
                    (E) by striking paragraphs (5) and (6).
            (5) Subsections (d), (e), and (f) are repealed.
            (6) Subsection (g) is amended by striking ``carrier or 
        carriers'' and inserting ``medicare administrative contractor 
        or contractors''.
            (7) Subsection (h) is amended--
                    (A) in paragraph (2)--
                            (i) by striking ``Each carrier having an 
                        agreement with the Secretary under subsection 
                        (a)'' and inserting ``The Secretary''; and
                            (ii) by striking ``Each such carrier'' and 
                        inserting ``The Secretary'';
                    (B) in paragraph (3)(A)--
                            (i) by striking ``a carrier having an 
                        agreement with the Secretary under subsection 
                        (a)'' and inserting ``medicare administrative 
                        contractor having a contract under section 
                        1874A that provides for making payments under 
                        this part''; and
                            (ii) by striking ``such carrier'' and 
                        inserting ``such contractor'';
                    (C) in paragraph (3)(B)--
                            (i) by striking ``a carrier'' and inserting 
                        ``a medicare administrative contractor'' each 
                        place it appears; and
                            (ii) by striking ``the carrier'' and 
                        inserting ``the contractor'' each place it 
                        appears; and
                    (D) in paragraphs (5)(A) and (5)(B)(iii), by 
                striking ``carriers'' and inserting ``medicare 
                administrative contractors'' each place it appears.
            (8) Subsection (l) is amended--
                    (A) in paragraph (1)(A)(iii), by striking 
                ``carrier'' and inserting ``medicare administrative 
                contractor''; and
                    (B) in paragraph (2), by striking ``carrier'' and 
                inserting ``medicare administrative contractor''.
            (9) Subsection (p)(3)(A) is amended by striking ``carrier'' 
        and inserting ``medicare administrative contractor''.
            (10) Subsection (q)(1)(A) is amended by striking 
        ``carrier''.
    (d) Effective Date; Transition Rule.--
            (1) Effective date.--
                    (A) In general.--Except as otherwise provided in 
                this subsection, the amendments made by this section 
                shall take effect on October 1, 2004, and the Secretary 
                is authorized to take such steps before such date as 
                may be necessary to implement such amendments on a 
                timely basis.
                    (B) Construction for current contracts.--Such 
                amendments shall not apply to contracts in effect 
                before the date specified under subparagraph (A) that 
                continue to retain the terms and conditions in effect 
                on such date (except as otherwise provided under this 
                Act, other than under this section) until such date as 
                the contract is let out for competitive bidding under 
                such amendments.
                    (C) Deadline for competitive bidding.--The 
                Secretary shall provide for the letting by competitive 
                bidding of all contracts for functions of medicare 
                administrative contractors for annual contract periods 
                that begin on or after October 1, 2009.
                    (D) Waiver of provider nomination provisions during 
                transition.--During the period beginning on the date of 
                the enactment of this Act and before the date specified 
                under subparagraph (A), the Secretary may enter into 
                new agreements under section 1816 of the Social 
                Security Act (42 U.S.C. 1395h) without regard to any of 
                the provider nomination provisions of such section.
            (2) General transition rules.--The Secretary shall take 
        such steps, consistent with paragraph (1)(B) and (1)(C), as are 
        necessary to provide for an appropriate transition from 
        contracts under section 1816 and section 1842 of the Social 
        Security Act (42 U.S.C. 1395h, 1395u) to contracts under 
        section 1874A, as added by subsection (a)(1).
            (3) Authorizing continuation of mip functions under current 
        contracts and agreements and under rollover contracts.--The 
        provisions contained in the exception in section 1893(d)(2) of 
        the Social Security Act (42 U.S.C. 1395ddd(d)(2)) shall 
        continue to apply notwithstanding the amendments made by this 
        section, and any reference in such provisions to an agreement 
        or contract shall be deemed to include a contract under section 
        1874A of such Act, as inserted by subsection (a)(1), that 
        continues the activities referred to in such provisions.
    (e) References.--On and after the effective date provided under 
subsection (d)(1), any reference to a fiscal intermediary or carrier 
under title XI or XVIII of the Social Security Act (or any regulation, 
manual instruction, interpretative rule, statement of policy, or 
guideline issued to carry out such titles) shall be deemed a reference 
to an appropriate medicare administrative contractor (as provided under 
section 1874A of the Social Security Act).
    (f) Reports on Implementation.--
            (1) Plan for implementation.--By not later than October 1, 
        2003, the Secretary shall submit a report to Congress and the 
        Comptroller General of the United States that describes the 
        plan for implementation of the amendments made by this section. 
        The Comptroller General shall conduct an evaluation of such 
        plan and shall submit to Congress, not later than 6 months 
        after the date the report is received, a report on such 
        evaluation and shall include in such report such 
        recommendations as the Comptroller General deems appropriate.
            (2) Status of implementation.--The Secretary shall submit a 
        report to Congress not later than October 1, 2007, that 
        describes the status of implementation of such amendments and 
        that includes a description of the following:
                    (A) The number of contracts that have been 
                competitively bid as of such date.
                    (B) The distribution of functions among contracts 
                and contractors.
                    (C) A timeline for complete transition to full 
                competition.
                    (D) A detailed description of how the Secretary has 
                modified oversight and management of medicare 
                contractors to adapt to full competition.

SEC. 812. REQUIREMENTS FOR INFORMATION SECURITY FOR MEDICARE 
              ADMINISTRATIVE CONTRACTORS.

    (a) In General.--Section 1874A, as added by section 811(a)(1), is 
amended by adding at the end the following new subsection:
    ``(e) Requirements for Information Security.--
            ``(1) Development of information security program.--A 
        medicare administrative contractor that performs the functions 
        referred to in subparagraphs (A) and (B) of subsection (a)(4) 
        (relating to determining and making payments) shall implement a 
        contractor-wide information security program to provide 
        information security for the operation and assets of the 
        contractor with respect to such functions under this title. An 
        information security program under this paragraph shall meet 
        the requirements for information security programs imposed on 
        Federal agencies under section 3534(b)(2) of title 44, United 
        States Code (other than requirements under subparagraphs 
        (B)(ii), (F)(iii), and (F)(iv) of such section).
            ``(2) Independent audits.--
                    ``(A) Performance of annual evaluations.--Each year 
                a medicare administrative contractor that performs the 
                functions referred to in subparagraphs (A) and (B) of 
                subsection (a)(4) (relating to determining and making 
                payments) shall undergo an evaluation of the 
                information security of the contractor with respect to 
                such functions under this title. The evaluation shall--
                            ``(i) be performed by an entity that meets 
                        such requirements for independence as the 
                        Inspector General of the Department of Health 
                        and Human Services may establish; and
                            ``(ii) test the effectiveness of 
                        information security control techniques for an 
                        appropriate subset of the contractor's 
                        information systems (as defined in section 
                        3502(8) of title 44, United States Code) 
                        relating to such functions under this title and 
                        an assessment of compliance with the 
                        requirements of this subsection and related 
                        information security policies, procedures, 
                        standards and guidelines.
                    ``(B) Deadline for initial evaluation.--
                            ``(i) New contractors.--In the case of a 
                        medicare administrative contractor covered by 
                        this subsection that has not previously 
                        performed the functions referred to in 
                        subparagraphs (A) and (B) of subsection (a)(4) 
                        (relating to determining and making payments) 
                        as a fiscal intermediary or carrier under 
                        section 1816 or 1842, the first independent 
                        evaluation conducted pursuant subparagraph (A) 
                        shall be completed prior to commencing such 
                        functions.
                            ``(ii) Other contractors.--In the case of a 
                        medicare administrative contractor covered by 
                        this subsection that is not described in clause 
                        (i), the first independent evaluation conducted 
                        pursuant subparagraph (A) shall be completed 
                        within 1 year after the date the contractor 
                        commences functions referred to in clause (i) 
                        under this section.
                    ``(C) Reports on evaluations.--
                            ``(i) To the inspector general.--The 
                        results of independent evaluations under 
                        subparagraph (A) shall be submitted promptly to 
                        the Inspector General of the Department of 
                        Health and Human Services.
                            ``(ii) To congress.--The Inspector General 
                        of Department of Health and Human Services 
                        shall submit to Congress annual reports on the 
                        results of such evaluations.''.
    (b) Application of Requirements to Fiscal Intermediaries and 
Carriers.--
            (1) In general.--The provisions of section 1874A(e)(2) of 
        the Social Security Act (other than subparagraph (B)), as added 
        by subsection (a), shall apply to each fiscal intermediary 
        under section 1816 of the Social Security Act (42 U.S.C. 1395h) 
        and each carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
            (2) Deadline for initial evaluation.--In the case of such a 
        fiscal intermediary or carrier with an agreement or contract 
        under such respective section in effect as of the date of the 
        enactment of this Act, the first evaluation under section 
        1874A(e)(2)(A) of the Social Security Act (as added by 
        subsection (a)), pursuant to paragraph (1), shall be completed 
        (and a report on the evaluation submitted to the Secretary) by 
        not later than 1 year after such date.

                   Subtitle C--Education and Outreach

SEC. 821. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

    (a) Coordination of Education Funding.--
            (1) In general.--The Social Security Act is amended by 
        inserting after section 1888 the following new section:

             ``provider education and technical assistance

    ``Sec. 1889. (a) Coordination of Education Funding.--The Secretary 
shall coordinate the educational activities provided through medicare 
contractors (as defined in subsection (g), including under section 
1893) in order to maximize the effectiveness of Federal education 
efforts for providers of services and suppliers.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.
            (3) Report.--Not later than October 1, 2003, the Secretary 
        shall submit to Congress a report that includes a description 
        and evaluation of the steps taken to coordinate the funding of 
        provider education under section 1889(a) of the Social Security 
        Act, as added by paragraph (1).
    (b) Incentives To Improve Contractor Performance.--
            (1) In general.--Section 1874A, as added by section 
        811(a)(1) and as amended by section 812(a), is amended by 
        adding at the end the following new subsection:
    ``(f) Incentives To Improve Contractor Performance in Provider 
Education and Outreach.--In order to give medicare administrative 
contractors an incentive to implement effective education and outreach 
programs for providers of services and suppliers, the Secretary shall 
develop and implement a methodology to measure the specific claims 
payment error rates of such contractors in the processing or reviewing 
of medicare claims.''.
            (2) Application to fiscal intermediaries and carriers.--The 
        provisions of section 1874A(f) of the Social Security Act, as 
        added by paragraph (1), shall apply to each fiscal intermediary 
        under section 1816 of the Social Security Act (42 U.S.C. 1395h) 
        and each carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
            (3) GAO report on adequacy of methodology.--Not later than 
        October 1, 2003, the Comptroller General of the United States 
        shall submit to Congress and to the Secretary a report on the 
        adequacy of the methodology under section 1874A(f) of the 
        Social Security Act, as added by paragraph (1), and shall 
        include in the report such recommendations as the Comptroller 
        General determines appropriate with respect to the methodology.
            (4) Report on use of methodology in assessing contractor 
        performance.--Not later than October 1, 2003, the Secretary 
        shall submit to Congress a report that describes how the 
        Secretary intends to use such methodology in assessing medicare 
        contractor performance in implementing effective education and 
        outreach programs, including whether to use such methodology as 
        a basis for performance bonuses. The report shall include an 
        analysis of the sources of identified errors and potential 
        changes in systems of contractors and rules of the Secretary 
        that could reduce claims error rates.
    (c) Provision of Access to and Prompt Responses From Medicare 
Administrative Contractors.--
            (1) In general.--Section 1874A, as added by section 
        811(a)(1) and as amended by section 812(a) and subsection (b), 
        is further amended by adding at the end the following new 
        subsection:
    ``(g) Communications with Beneficiaries, Providers of Services and 
Suppliers.--
            ``(1) Communication strategy.--The Secretary shall develop 
        a strategy for communications with individuals entitled to 
        benefits under part A or enrolled under part B, or both, and 
        with providers of services and suppliers under this title.
            ``(2) Response to written inquiries.--Each medicare 
        administrative contractor shall, for those providers of 
        services and suppliers which submit claims to the contractor 
        for claims processing and for those individuals entitled to 
        benefits under part A or enrolled under part B, or both, with 
        respect to whom claims are submitted for claims processing, 
        provide general written responses (which may be through 
        electronic transmission) in a clear, concise, and accurate 
        manner to inquiries of providers of services, suppliers and 
        individuals entitled to benefits under part A or enrolled under 
        part B, or both, concerning the programs under this title 
        within 45 business days of the date of receipt of such 
        inquiries.
            ``(3) Response to toll-free lines.--The Secretary shall 
        ensure that each medicare administrative contractor shall 
        provide, for those providers of services and suppliers which 
        submit claims to the contractor for claims processing and for 
        those individuals entitled to benefits under part A or enrolled 
        under part B, or both, with respect to whom claims are 
        submitted for claims processing, a toll-free telephone number 
        at which such individuals, providers of services and suppliers 
        may obtain information regarding billing, coding, claims, 
        coverage, and other appropriate information under this title.
            ``(4) Monitoring of contractor responses.--
                    ``(A) In general.--Each medicare administrative 
                contractor shall, consistent with standards developed 
                by the Secretary under subparagraph (B)--
                            ``(i) maintain a system for identifying who 
                        provides the information referred to in 
                        paragraphs (2) and (3); and
                            ``(ii) monitor the accuracy, consistency, 
                        and timeliness of the information so provided.
                    ``(B) Development of standards.--
                            ``(i) In general.--The Secretary shall 
                        establish and make public standards to monitor 
                        the accuracy, consistency, and timeliness of 
                        the information provided in response to written 
                        and telephone inquiries under this subsection. 
                        Such standards shall be consistent with the 
                        performance requirements established under 
                        subsection (b)(3).
                            ``(ii) Evaluation.--In conducting 
                        evaluations of individual medicare 
                        administrative contractors, the Secretary shall 
                        take into account the results of the monitoring 
                        conducted under subparagraph (A) taking into 
                        account as performance requirements the 
                        standards established under clause (i). The 
                        Secretary shall, in consultation with 
                        organizations representing providers of 
                        services, suppliers, and individuals entitled 
                        to benefits under part A or enrolled under part 
                        B, or both, establish standards relating to the 
                        accuracy, consistency, and timeliness of the 
                        information so provided.
                    ``(C) Direct monitoring.--Nothing in this paragraph 
                shall be construed as preventing the Secretary from 
                directly monitoring the accuracy, consistency, and 
                timeliness of the information so provided.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect October 1, 2003.
            (3) Application to fiscal intermediaries and carriers.--The 
        provisions of section 1874A(g) of the Social Security Act, as 
        added by paragraph (1), shall apply to each fiscal intermediary 
        under section 1816 of the Social Security Act (42 U.S.C. 1395h) 
        and each carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
    (d) Improved Provider Education and Training.--
            (1) In general.--Section 1889, as added by subsection (a), 
        is amended by adding at the end the following new subsections:
    ``(b) Enhanced Education and Training.--
            ``(1) Additional resources.--There are authorized to be 
        appropriated to the Secretary (in appropriate part from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund) $25,000,000 for 
        each of fiscal years 2004 and 2005 and such sums as may be 
        necessary for succeeding fiscal years.
            ``(2) Use.--The funds made available under paragraph (1) 
        shall be used to increase the conduct by medicare contractors 
        of education and training of providers of services and 
        suppliers regarding billing, coding, and other appropriate 
        items and may also be used to improve the accuracy, 
        consistency, and timeliness of contractor responses.
    ``(c) Tailoring Education and Training Activities for Small 
Providers or Suppliers.--
            ``(1) In general.--Insofar as a medicare contractor 
        conducts education and training activities, it shall tailor 
        such activities to meet the special needs of small providers of 
        services or suppliers (as defined in paragraph (2)).
            ``(2) Small provider of services or supplier.--In this 
        subsection, the term `small provider of services or supplier' 
        means--
                    ``(A) a provider of services with fewer than 25 
                full-time-equivalent employees; or
                    ``(B) a supplier with fewer than 10 full-time-
                equivalent employees.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2003.
    (e) Requirement To Maintain Internet Sites.--
            (1) In general.--Section 1889, as added by subsection (a) 
        and as amended by subsection (d), is further amended by adding 
        at the end the following new subsection:
    ``(d) Internet Sites; FAQs.--The Secretary, and each medicare 
contractor insofar as it provides services (including claims 
processing) for providers of services or suppliers, shall maintain an 
Internet site which--
            ``(1) provides answers in an easily accessible format to 
        frequently asked questions, and
            ``(2) includes other published materials of the contractor,
that relate to providers of services and suppliers under the programs 
under this title (and title XI insofar as it relates to such 
programs).''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2003.
    (f) Additional Provider Education Provisions.--
            (1) In general.--Section 1889, as added by subsection (a) 
        and as amended by subsections (d) and (e), is further amended 
        by adding at the end the following new subsections:
    ``(e) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of attendance 
at (or failure to attend) educational activities or other information 
gathered during an educational program conducted under this section or 
otherwise by the Secretary to select or track providers of services or 
suppliers for the purpose of conducting any type of audit or prepayment 
review.
    ``(f) Construction.--Nothing in this section or section 1893(g) 
shall be construed as providing for disclosure by a medicare contractor 
of information that would compromise pending law enforcement activities 
or reveal findings of law enforcement-related audits.
    ``(g) Definitions.--For purposes of this section, the term 
`medicare contractor' includes the following:
            ``(1) A medicare administrative contractor with a contract 
        under section 1874A, including a fiscal intermediary with a 
        contract under section 1816 and a carrier with a contract under 
        section 1842.
            ``(2) An eligible entity with a contract under section 
        1893.
Such term does not include, with respect to activities of a specific 
provider of services or supplier an entity that has no authority under 
this title or title IX with respect to such activities and such 
provider of services or supplier.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.

SEC. 822. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION PROGRAM.

    (a) Establishment.--
            (1) In general.--The Secretary shall establish a 
        demonstration program (in this section referred to as the 
        ``demonstration program'') under which technical assistance 
        described in paragraph (2) is made available, upon request and 
        on a voluntary basis, to small providers of services or 
        suppliers in order to improve compliance with the applicable 
        requirements of the programs under medicare program under title 
        XVIII of the Social Security Act (including provisions of title 
        XI of such Act insofar as they relate to such title and are not 
        administered by the Office of the Inspector General of the 
        Department of Health and Human Services).
            (2) Forms of technical assistance.--The technical 
        assistance described in this paragraph is--
                    (A) evaluation and recommendations regarding 
                billing and related systems; and
                    (B) information and assistance regarding policies 
                and procedures under the medicare program, including 
                coding and reimbursement.
            (3) Small providers of services or suppliers.--In this 
        section, the term ``small providers of services or suppliers'' 
        means--
                    (A) a provider of services with fewer than 25 full-
                time-equivalent employees; or
                    (B) a supplier with fewer than 10 full-time-
                equivalent employees.
    (b) Qualification of Contractors.--In conducting the demonstration 
program, the Secretary shall enter into contracts with qualified 
organizations (such as peer review organizations or entities described 
in section 1889(g)(2) of the Social Security Act, as inserted by 
section 5(f)(1)) with appropriate expertise with billing systems of the 
full range of providers of services and suppliers to provide the 
technical assistance. In awarding such contracts, the Secretary shall 
consider any prior investigations of the entity's work by the Inspector 
General of Department of Health and Human Services or the Comptroller 
General of the United States.
    (c) Description of Technical Assistance.--The technical assistance 
provided under the demonstration program shall include a direct and in-
person examination of billing systems and internal controls of small 
providers of services or suppliers to determine program compliance and 
to suggest more efficient or effective means of achieving such 
compliance.
    (d) Avoidance of Recovery Actions for Problems Identified as 
Corrected.--The Secretary shall provide that, absent evidence of fraud 
and notwithstanding any other provision of law, any errors found in a 
compliance review for a small provider of services or supplier that 
participates in the demonstration program shall not be subject to 
recovery action if the technical assistance personnel under the program 
determine that--
            (1) the problem that is the subject of the compliance 
        review has been corrected to their satisfaction within 30 days 
        of the date of the visit by such personnel to the small 
        provider of services or supplier; and
            (2) such problem remains corrected for such period as is 
        appropriate.
The previous sentence applies only to claims filed as part of the 
demonstration program and lasts only for the duration of such program 
and only as long as the small provider of services or supplier is a 
participant in such program.
    (e) GAO Evaluation.--Not later than 2 years after the date of the 
date the demonstration program is first implemented, the Comptroller 
General, in consultation with the Inspector General of the Department 
of Health and Human Services, shall conduct an evaluation of the 
demonstration program. The evaluation shall include a determination of 
whether claims error rates are reduced for small providers of services 
or suppliers who participated in the program and the extent of improper 
payments made as a result of the demonstration program. The Comptroller 
General shall submit a report to the Secretary and the Congress on such 
evaluation and shall include in such report recommendations regarding 
the continuation or extension of the demonstration program.
    (f) Financial Participation by Providers.--The provision of 
technical assistance to a small provider of services or supplier under 
the demonstration program is conditioned upon the small provider of 
services or supplier paying an amount estimated (and disclosed in 
advance of a provider's or supplier's participation in the program) to 
be equal to 25 percent of the cost of the technical assistance.
    (g) Authorization of Appropriations.--There are authorized to be 
appropriated to the Secretary (in appropriate part from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary Medical 
Insurance Trust Fund) to carry out the demonstration program--
            (1) for fiscal year 2004, $1,000,000, and
            (2) for fiscal year 2005, $6,000,000.

SEC. 823. MEDICARE PROVIDER OMBUDSMAN; MEDICARE BENEFICIARY OMBUDSMAN.

    (a) Medicare Provider Ombudsman.--Section 1868 (42 U.S.C. 1395ee) 
is amended--
            (1) by adding at the end of the heading the following: ``; 
        medicare provider ombudsman'';
            (2) by inserting ``Practicing Physicians Advisory 
        Council.--(1)'' after ``(a)'';
            (3) in paragraph (1), as so redesignated under paragraph 
        (2), by striking ``in this section'' and inserting ``in this 
        subsection'';
            (4) by redesignating subsections (b) and (c) as paragraphs 
        (2) and (3), respectively; and
            (5) by adding at the end the following new subsection:
    ``(b) Medicare Provider Ombudsman.--The Secretary shall appoint 
within the Department of Health and Human Services a Medicare Provider 
Ombudsman. The Ombudsman shall--
            ``(1) provide assistance, on a confidential basis, to 
        providers of services and suppliers with respect to complaints, 
        grievances, and requests for information concerning the 
        programs under this title (including provisions of title XI 
        insofar as they relate to this title and are not administered 
        by the Office of the Inspector General of the Department of 
        Health and Human Services) and in the resolution of unclear or 
        conflicting guidance given by the Secretary and medicare 
        contractors to such providers of services and suppliers 
        regarding such programs and provisions and requirements under 
        this title and such provisions; and
            ``(2) submit recommendations to the Secretary for 
        improvement in the administration of this title and such 
        provisions, including--
                    ``(A) recommendations to respond to recurring 
                patterns of confusion in this title and such provisions 
                (including recommendations regarding suspending 
                imposition of sanctions where there is widespread 
                confusion in program administration), and
                    ``(B) recommendations to provide for an appropriate 
                and consistent response (including not providing for 
                audits) in cases of self-identified overpayments by 
                providers of services and suppliers.
The Ombudsman shall not serve as an advocate for any increases in 
payments or new coverage of services, but may identify issues and 
problems in payment or coverage policies.''.
    (b) Medicare Beneficiary Ombudsman.--Title XVIII, as amended by 
sections 105 and 701, is amended by inserting after section 1808 the 
following new section:

                    ``medicare beneficiary ombudsman

    ``Sec. 1809. (a) In General.--The Secretary shall appoint within 
the Department of Health and Human Services a Medicare Beneficiary 
Ombudsman who shall have expertise and experience in the fields of 
health care and education of (and assistance to) individuals entitled 
to benefits under this title.
    ``(b) Duties.--The Medicare Beneficiary Ombudsman shall--
            ``(1) receive complaints, grievances, and requests for 
        information submitted by individuals entitled to benefits under 
        part A or enrolled under part B, or both, with respect to any 
        aspect of the medicare program;
            ``(2) provide assistance with respect to complaints, 
        grievances, and requests referred to in paragraph (1), 
        including--
                    ``(A) assistance in collecting relevant information 
                for such individuals, to seek an appeal of a decision 
                or determination made by a fiscal intermediary, 
                carrier, Medicare+Choice organization, or the 
                Secretary; and
                    ``(B) assistance to such individuals with any 
                problems arising from disenrollment from a 
                Medicare+Choice plan under part C; and
            ``(3) submit annual reports to Congress and the Secretary 
        that describe the activities of the Office and that include 
        such recommendations for improvement in the administration of 
        this title as the Ombudsman determines appropriate.
The Ombudsman shall not serve as an advocate for any increases in 
payments or new coverage of services, but may identify issues and 
problems in payment or coverage policies.
    ``(c) Working with Health Insurance Counseling Programs.--To the 
extent possible, the Ombudsman shall work with health insurance 
counseling programs (receiving funding under section 4360 of Omnibus 
Budget Reconciliation Act of 1990) to facilitate the provision of 
information to individuals entitled to benefits under part A or 
enrolled under part B, or both regarding Medicare+Choice plans and 
changes to those plans. Nothing in this subsection shall preclude 
further collaboration between the Ombudsman and such programs.''.
    (c) Deadline for Appointment.--The Secretary shall appoint the 
Medicare Provider Ombudsman and the Medicare Beneficiary Ombudsman, 
under the amendments made by subsections (a) and (b), respectively, by 
not later than 1 year after the date of the enactment of this Act.
    (d) Funding.--There are authorized to be appropriated to the 
Secretary (in appropriate part from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund) 
to carry out the provisions of subsection (b) of section 1868 of the 
Social Security Act (relating to the Medicare Provider Ombudsman), as 
added by subsection (a)(5) and section 1809 of such Act (relating to 
the Medicare Beneficiary Ombudsman), as added by subsection (b), such 
sums as are necessary for fiscal year 2003 and each succeeding fiscal 
year.
    (e) Use of Central, Toll-Free Number (1-800-MEDICARE).--
            (1) Phone triage system; listing in medicare handbook 
        instead of other toll-free numbers.--Section 1804(b) (42 U.S.C. 
        1395b-2(b)) is amended by adding at the end the following: 
        ``The Secretary shall provide, through the toll-free number 1-
        800-MEDICARE, for a means by which individuals seeking 
        information about, or assistance with, such programs who phone 
        such toll-free number are transferred (without charge) to 
        appropriate entities for the provision of such information or 
        assistance. Such toll-free number shall be the toll-free number 
        listed for general information and assistance in the annual 
        notice under subsection (a) instead of the listing of numbers 
        of individual contractors.''.
            (2) Monitoring accuracy.--
                    (A) Study.--The Comptroller General of the United 
                States shall conduct a study to monitor the accuracy 
                and consistency of information provided to individuals 
                entitled to benefits under part A or enrolled under 
                part B, or both, through the toll-free number 1-800-
                MEDICARE, including an assessment of whether the 
                information provided is sufficient to answer questions 
                of such individuals. In conducting the study, the 
                Comptroller General shall examine the education and 
                training of the individuals providing information 
                through such number.
                    (B) Report.--Not later than 1 year after the date 
                of the enactment of this Act, the Comptroller General 
                shall submit to Congress a report on the study 
                conducted under subparagraph (A).

SEC. 824. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.

    (a) In General.--The Secretary shall establish a demonstration 
program (in this section referred to as the ``demonstration program'') 
under which medicare specialists employed by the Department of Health 
and Human Services provide advice and assistance to individuals 
entitled to benefits under part A of title XVIII of the Social Security 
Act, or enrolled under part B of such title, or both, regarding the 
medicare program at the location of existing local offices of the 
Social Security Administration.
    (b) Locations.--
            (1) In general.--The demonstration program shall be 
        conducted in at least 6 offices or areas. Subject to paragraph 
        (2), in selecting such offices and areas, the Secretary shall 
        provide preference for offices with a high volume of visits by 
        individuals referred to in subsection (a).
            (2) Assistance for rural beneficiaries.--The Secretary 
        shall provide for the selection of at least 2 rural areas to 
        participate in the demonstration program. In conducting the 
        demonstration program in such rural areas, the Secretary shall 
        provide for medicare specialists to travel among local offices 
        in a rural area on a scheduled basis.
    (c) Duration.--The demonstration program shall be conducted over a 
3-year period.
    (d) Evaluation and Report.--
            (1) Evaluation.--The Secretary shall provide for an 
        evaluation of the demonstration program. Such evaluation shall 
        include an analysis of--
                    (A) utilization of, and satisfaction of those 
                individuals referred to in subsection (a) with, the 
                assistance provided under the program; and
                    (B) the cost-effectiveness of providing beneficiary 
                assistance through out-stationing medicare specialists 
                at local offices of the Social Security Administration.
            (2) Report.--The Secretary shall submit to Congress a 
        report on such evaluation and shall include in such report 
        recommendations regarding the feasibility of permanently out-
        stationing medicare specialists at local offices of the Social 
        Security Administration.

                    Subtitle D--Appeals and Recovery

SEC. 831. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

    (a) Transition Plan.--
            (1) In general.--Not later than October 1, 2003, the 
        Commissioner of Social Security and the Secretary shall develop 
        and transmit to Congress and the Comptroller General of the 
        United States a plan under which the functions of 
        administrative law judges responsible for hearing cases under 
        title XVIII of the Social Security Act (and related provisions 
        in title XI of such Act) are transferred from the 
        responsibility of the Commissioner and the Social Security 
        Administration to the Secretary and the Department of Health 
        and Human Services.
            (2) GAO evaluation.--The Comptroller General of the United 
        States shall evaluate the plan and, not later than the date 
        that is 6 months after the date on which the plan is received 
        by the Comptroller General, shall submit to Congress a report 
        on such evaluation.
    (b) Transfer of Adjudication Authority.--
            (1) In general.--Not earlier than July 1, 2004, and not 
        later than October 1, 2004, the Commissioner of Social Security 
        and the Secretary shall implement the transition plan under 
        subsection (a) and transfer the administrative law judge 
        functions described in such subsection from the Social Security 
        Administration to the Secretary.
            (2) Assuring independence of judges.--The Secretary shall 
        assure the independence of administrative law judges performing 
        the administrative law judge functions transferred under 
        paragraph (1) from the Centers for Medicare & Medicaid Services 
        and its contractors.
            (3) Geographic distribution.--The Secretary shall provide 
        for an appropriate geographic distribution of administrative 
        law judges performing the administrative law judge functions 
        transferred under paragraph (1) throughout the United States to 
        ensure timely access to such judges.
            (4) Hiring authority.--Subject to the amounts provided in 
        advance in appropriations Act, the Secretary shall have 
        authority to hire administrative law judges to hear such cases, 
        giving priority to those judges with prior experience in 
        handling medicare appeals and in a manner consistent with 
        paragraph (3), and to hire support staff for such judges.
            (5) Financing.--Amounts payable under law to the 
        Commissioner for administrative law judges performing the 
        administrative law judge functions transferred under paragraph 
        (1) from the Federal Hospital Insurance Trust Fund and the 
        Federal Supplementary Medical Insurance Trust Fund shall become 
        payable to the Secretary for the functions so transferred.
            (6) Shared resources.--The Secretary shall enter into such 
        arrangements with the Commissioner as may be appropriate with 
        respect to transferred functions of administrative law judges 
        to share office space, support staff, and other resources, with 
        appropriate reimbursement from the Trust Funds described in 
        paragraph (5).
    (c) Increased Financial Support.--In addition to any amounts 
otherwise appropriated, to ensure timely action on appeals before 
administrative law judges and the Departmental Appeals Board consistent 
with section 1869 of the Social Security Act (as amended by section 521 
of BIPA, 114 Stat. 2763A-534), there are authorized to be appropriated 
(in appropriate part from the Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund) to the 
Secretary such sums as are necessary for fiscal year 2004 and each 
subsequent fiscal year to--
            (1) increase the number of administrative law judges (and 
        their staffs) under subsection (b)(4);
            (2) improve education and training opportunities for 
        administrative law judges (and their staffs); and
            (3) increase the staff of the Departmental Appeals Board.
    (d) Conforming Amendment.--Section 1869(f)(2)(A)(i) (42 U.S.C. 
1395ff(f)(2)(A)(i)), as added by section 522(a) of BIPA (114 Stat. 
2763A-543), is amended by striking ``of the Social Security 
Administration''.

SEC. 832. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

    (a) Expedited Access to Judicial Review.--Section 1869(b) (42 
U.S.C. 1395ff(b)) as amended by BIPA, is amended--
            (1) in paragraph (1)(A), by inserting ``, subject to 
        paragraph (2),'' before ``to judicial review of the Secretary's 
        final decision'';
            (2) in paragraph (1)(F)--
                    (A) by striking clause (ii);
                    (B) by striking ``proceeding'' and all that follows 
                through ``determination'' and inserting 
                ``determinations and reconsiderations''; and
                    (C) by redesignating subclauses (I) and (II) as 
                clauses (i) and (ii) and by moving the indentation of 
                such subclauses (and the matter that follows) 2 ems to 
                the left; and
            (3) by adding at the end the following new paragraph:
            ``(2) Expedited access to judicial review.--
                    ``(A) In general.--The Secretary shall establish a 
                process under which a provider of services or supplier 
                that furnishes an item or service or an individual 
                entitled to benefits under part A or enrolled under 
                part B, or both, who has filed an appeal under 
                paragraph (1) may obtain access to judicial review when 
                a review panel (described in subparagraph (D)), on its 
                own motion or at the request of the appellant, 
                determines that no entity in the administrative appeals 
                process has the authority to decide the question of law 
                or regulation relevant to the matters in controversy 
                and that there is no material issue of fact in dispute. 
                The appellant may make such request only once with 
                respect to a question of law or regulation in a case of 
                an appeal.
                    ``(B) Prompt determinations.--If, after or 
                coincident with appropriately filing a request for an 
                administrative hearing, the appellant requests a 
                determination by the appropriate review panel that no 
                review panel has the authority to decide the question 
                of law or regulations relevant to the matters in 
                controversy and that there is no material issue of fact 
                in dispute and if such request is accompanied by the 
                documents and materials as the appropriate review panel 
                shall require for purposes of making such 
                determination, such review panel shall make a 
                determination on the request in writing within 60 days 
                after the date such review panel receives the request 
                and such accompanying documents and materials. Such a 
                determination by such review panel shall be considered 
                a final decision and not subject to review by the 
                Secretary.
                    ``(C) Access to judicial review.--
                            ``(i) In general.--If the appropriate 
                        review panel--
                                    ``(I) determines that there are no 
                                material issues of fact in dispute and 
                                that the only issue is one of law or 
                                regulation that no review panel has the 
                                authority to decide; or
                                    ``(II) fails to make such 
                                determination within the period 
                                provided under subparagraph (B);
                        then the appellant may bring a civil action as 
                        described in this subparagraph.
                            ``(ii) Deadline for filing.--Such action 
                        shall be filed, in the case described in--
                                    ``(I) clause (i)(I), within 60 days 
                                of date of the determination described 
                                in such subparagraph; or
                                    ``(II) clause (i)(II), within 60 
                                days of the end of the period provided 
                                under subparagraph (B) for the 
                                determination.
                            ``(iii) Venue.--Such action shall be 
                        brought in the district court of the United 
                        States for the judicial district in which the 
                        appellant is located (or, in the case of an 
                        action brought jointly by more than one 
                        applicant, the judicial district in which the 
                        greatest number of applicants are located) or 
                        in the district court for the District of 
                        Columbia.
                            ``(iv) Interest on amounts in 
                        controversy.--Where a provider of services or 
                        supplier seeks judicial review pursuant to this 
                        paragraph, the amount in controversy shall be 
                        subject to annual interest beginning on the 
                        first day of the first month beginning after 
                        the 60-day period as determined pursuant to 
                        clause (ii) and equal to the rate of interest 
                        on obligations issued for purchase by the 
                        Federal Hospital Insurance Trust Fund and by 
                        the Federal Supplementary Medical Insurance 
                        Trust Fund for the month in which the civil 
                        action authorized under this paragraph is 
                        commenced, to be awarded by the reviewing court 
                        in favor of the prevailing party. No interest 
                        awarded pursuant to the preceding sentence 
                        shall be deemed income or cost for the purposes 
                        of determining reimbursement due providers of 
                        services or suppliers under this Act.
                    ``(D) Review panels.--For purposes of this 
                subsection, a `review panel' is a panel consisting of 3 
                members (who shall be administrative law judges, 
                members of the Departmental Appeals Board, or qualified 
                individuals associated with a qualified independent 
                contractor (as defined in subsection (c)(2)) or with 
                another independent entity) designated by the Secretary 
                for purposes of making determinations under this 
                paragraph.''.
    (b) Application to Provider Agreement Determinations.--Section 
1866(h)(1) (42 U.S.C. 1395cc(h)(1)) is amended--
            (1) by inserting ``(A)'' after ``(h)(1)''; and
            (2) by adding at the end the following new subparagraph:
    ``(B) An institution or agency described in subparagraph (A) that 
has filed for a hearing under subparagraph (A) shall have expedited 
access to judicial review under this subparagraph in the same manner as 
providers of services, suppliers, and individuals entitled to benefits 
under part A or enrolled under part B, or both, may obtain expedited 
access to judicial review under the process established under section 
1869(b)(2). Nothing in this subparagraph shall be construed to affect 
the application of any remedy imposed under section 1819 during the 
pendency of an appeal under this subparagraph.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to appeals filed on or after October 1, 2003.
    (d) Expedited Review of Certain Provider Agreement 
Determinations.--
            (1) Termination and certain other immediate remedies.--The 
        Secretary shall develop and implement a process to expedite 
        proceedings under sections 1866(h) of the Social Security Act 
        (42 U.S.C. 1395cc(h)) in which the remedy of termination of 
        participation, or a remedy described in clause (i) or (iii) of 
        section 1819(h)(2)(B) of such Act (42 U.S.C. 1395i-3(h)(2)(B)) 
        which is applied on an immediate basis, has been imposed. Under 
        such process priority shall be provided in cases of 
        termination.
            (2) Increased financial support.--In addition to any 
        amounts otherwise appropriated, to reduce by 50 percent the 
        average time for administrative determinations on appeals under 
        section 1866(h) of the Social Security Act (42 U.S.C. 
        1395cc(h)), there are authorized to be appropriated (in 
        appropriate part from the Federal Hospital Insurance Trust Fund 
        and the Federal Supplementary Medical Insurance Trust Fund) to 
        the Secretary such additional sums for fiscal year 2004 and 
        each subsequent fiscal year as may be necessary. The purposes 
        for which such amounts are available include increasing the 
        number of administrative law judges (and their staffs) and the 
        appellate level staff at the Departmental Appeals Board of the 
        Department of Health and Human Services and educating such 
        judges and staffs on long-term care issues.

SEC. 833. REVISIONS TO MEDICARE APPEALS PROCESS.

    (a) Requiring Full and Early Presentation of Evidence.--
            (1) In general.--Section 1869(b) (42 U.S.C. 1395ff(b)), as 
        amended by BIPA and as amended by section 832(a), is further 
        amended by adding at the end the following new paragraph:
            ``(3) Requiring full and early presentation of evidence by 
        providers.--A provider of services or supplier may not 
        introduce evidence in any appeal under this section that was 
        not presented at the reconsideration conducted by the qualified 
        independent contractor under subsection (c), unless there is 
        good cause which precluded the introduction of such evidence at 
        or before that reconsideration.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2003.
    (b) Use of Patients' Medical Records.--Section 1869(c)(3)(B)(i) (42 
U.S.C. 1395ff(c)(3)(B)(i)), as amended by BIPA, is amended by inserting 
``(including the medical records of the individual involved)'' after 
``clinical experience''.
    (c) Notice Requirements for Medicare Appeals.--
            (1) Initial determinations and redeterminations.--Section 
        1869(a) (42 U.S.C. 1395ff(a)), as amended by BIPA, is amended 
        by adding at the end the following new paragraph:
            ``(4) Requirements of notice of determinations and 
        redeterminations.--A written notice of a determination on an 
        initial determination or on a redetermination, insofar as such 
        determination or redetermination results in a denial of a claim 
        for benefits, shall include--
                    ``(A) the specific reasons for the determination, 
                including--
                            ``(i) upon request, the provision of the 
                        policy, manual, or regulation used in making 
                        the determination; and
                            ``(ii) as appropriate in the case of a 
                        redetermination, a summary of the clinical or 
                        scientific evidence used in making the 
                        determination;
                    ``(B) the procedures for obtaining additional 
                information concerning the determination or 
                redetermination; and
                    ``(C) notification of the right to seek a 
                redetermination or otherwise appeal the determination 
                and instructions on how to initiate such a 
                redetermination or appeal under this section.
        The written notice on a redetermination shall be provided in 
        printed form and written in a manner calculated to be 
        understood by the individual entitled to benefits under part A 
        or enrolled under part B, or both.''.
            (2) Reconsiderations.--Section 1869(c)(3)(E) (42 U.S.C. 
        1395ff(c)(3)(E)), as amended by BIPA, is amended--
                    (A) by inserting ``be written in a manner 
                calculated to be understood by the individual entitled 
                to benefits under part A or enrolled under part B, or 
                both, and shall include (to the extent appropriate)'' 
                after ``in writing, ''; and
                    (B) by inserting ``and a notification of the right 
                to appeal such determination and instructions on how to 
                initiate such appeal under this section'' after ``such 
                decision,''.
            (3) Appeals.--Section 1869(d) (42 U.S.C. 1395ff(d)), as 
        amended by BIPA, is amended--
                    (A) in the heading, by inserting ``; Notice'' after 
                ``Secretary''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(4) Notice.--Notice of the decision of an administrative 
        law judge shall be in writing in a manner calculated to be 
        understood by the individual entitled to benefits under part A 
        or enrolled under part B, or both, and shall include--
                    ``(A) the specific reasons for the determination 
                (including, to the extent appropriate, a summary of the 
                clinical or scientific evidence used in making the 
                determination);
                    ``(B) the procedures for obtaining additional 
                information concerning the decision; and
                    ``(C) notification of the right to appeal the 
                decision and instructions on how to initiate such an 
                appeal under this section.''.
            (4) Submission of record for appeal.--Section 
        1869(c)(3)(J)(i) (42 U.S.C. 1395ff(c)(3)(J)(i)) by striking 
        ``prepare'' and inserting ``submit'' and by striking ``with 
        respect to'' and all that follows through ``and relevant 
        policies''.
    (d) Qualified Independent Contractors.--
            (1) Eligibility requirements of qualified independent 
        contractors.--Section 1869(c)(3) (42 U.S.C. 1395ff(c)(3)), as 
        amended by BIPA, is amended--
                    (A) in subparagraph (A), by striking ``sufficient 
                training and expertise in medical science and legal 
                matters'' and inserting ``sufficient medical, legal, 
                and other expertise (including knowledge of the program 
                under this title) and sufficient staffing''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(K) Independence requirements.--
                            ``(i) In general.--Subject to clause (ii), 
                        a qualified independent contractor shall not 
                        conduct any activities in a case unless the 
                        entity--
                                    ``(I) is not a related party (as 
                                defined in subsection (g)(5));
                                    ``(II) does not have a material 
                                familial, financial, or professional 
                                relationship with such a party in 
                                relation to such case; and
                                    ``(III) does not otherwise have a 
                                conflict of interest with such a party.
                            ``(ii) Exception for reasonable 
                        compensation.--Nothing in clause (i) shall be 
                        construed to prohibit receipt by a qualified 
                        independent contractor of compensation from the 
                        Secretary for the conduct of activities under 
                        this section if the compensation is provided 
                        consistent with clause (iii).
                            ``(iii) Limitations on entity 
                        compensation.--Compensation provided by the 
                        Secretary to a qualified independent contractor 
                        in connection with reviews under this section 
                        shall not be contingent on any decision 
                        rendered by the contractor or by any reviewing 
                        professional.''.
            (2) Eligibility requirements for reviewers.--Section 1869 
        (42 U.S.C. 1395ff), as amended by BIPA, is amended--
                    (A) by amending subsection (c)(3)(D) to read as 
                follows:
                    ``(D) Qualifications for reviewers.--The 
                requirements of subsection (g) shall be met (relating 
                to qualifications of reviewing professionals).''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(g) Qualifications of Reviewers.--
            ``(1) In general.--In reviewing determinations under this 
        section, a qualified independent contractor shall assure that--
                    ``(A) each individual conducting a review shall 
                meet the qualifications of paragraph (2);
                    ``(B) compensation provided by the contractor to 
                each such reviewer is consistent with paragraph (3); 
                and
                    ``(C) in the case of a review by a panel described 
                in subsection (c)(3)(B) composed of physicians or other 
                health care professionals (each in this subsection 
                referred to as a `reviewing professional'), each 
                reviewing professional meets the qualifications 
                described in paragraph (4) and, where a claim is 
                regarding the furnishing of treatment by a physician 
                (allopathic or osteopathic) or the provision of items 
                or services by a physician (allopathic or osteopathic), 
                each reviewing professional shall be a physician 
                (allopathic or osteopathic).
            ``(2) Independence.--
                    ``(A) In general.--Subject to subparagraph (B), 
                each individual conducting a review in a case shall--
                            ``(i) not be a related party (as defined in 
                        paragraph (5));
                            ``(ii) not have a material familial, 
                        financial, or professional relationship with 
                        such a party in the case under review; and
                            ``(iii) not otherwise have a conflict of 
                        interest with such a party.
                    ``(B) Exception.--Nothing in subparagraph (A) shall 
                be construed to--
                            ``(i) prohibit an individual, solely on the 
                        basis of a participation agreement with a 
                        fiscal intermediary, carrier, or other 
                        contractor, from serving as a reviewing 
                        professional if--
                                    ``(I) the individual is not 
                                involved in the provision of items or 
                                services in the case under review;
                                    ``(II) the fact of such an 
                                agreement is disclosed to the Secretary 
                                and the individual entitled to benefits 
                                under part A or enrolled under part B, 
                                or both, (or authorized representative) 
                                and neither party objects; and
                                    ``(III) the individual is not an 
                                employee of the intermediary, carrier, 
                                or contractor and does not provide 
                                services exclusively or primarily to or 
                                on behalf of such intermediary, 
                                carrier, or contractor;
                            ``(ii) prohibit an individual who has staff 
                        privileges at the institution where the 
                        treatment involved takes place from serving as 
                        a reviewer merely on the basis of having such 
                        staff privileges if the existence of such 
                        privileges is disclosed to the Secretary and 
                        such individual (or authorized representative), 
                        and neither party objects; or
                            ``(iii) prohibit receipt of compensation by 
                        a reviewing professional from a contractor if 
                        the compensation is provided consistent with 
                        paragraph (3).
                For purposes of this paragraph, the term `participation 
                agreement' means an agreement relating to the provision 
                of health care services by the individual and does not 
                include the provision of services as a reviewer under 
                this subsection.
            ``(3) Limitations on reviewer compensation.--Compensation 
        provided by a qualified independent contractor to a reviewer in 
        connection with a review under this section shall not be 
        contingent on the decision rendered by the reviewer.
            ``(4) Licensure and expertise.--Each reviewing professional 
        shall be--
                    ``(A) a physician (allopathic or osteopathic) who 
                is appropriately credentialed or licensed in one or 
                more States to deliver health care services and has 
                medical expertise in the field of practice that is 
                appropriate for the items or services at issue; or
                    ``(B) a health care professional who is legally 
                authorized in one or more States (in accordance with 
                State law or the State regulatory mechanism provided by 
                State law) to furnish the health care items or services 
                at issue and has medical expertise in the field of 
                practice that is appropriate for such items or 
                services.
            ``(5) Related party defined.--For purposes of this section, 
        the term `related party' means, with respect to a case under 
        this title involving a specific individual entitled to benefits 
        under part A or enrolled under part B, or both, any of the 
        following:
                    ``(A) The Secretary, the medicare administrative 
                contractor involved, or any fiduciary, officer, 
                director, or employee of the Department of Health and 
                Human Services, or of such contractor.
                    ``(B) The individual (or authorized 
                representative).
                    ``(C) The health care professional that provides 
                the items or services involved in the case.
                    ``(D) The institution at which the items or 
                services (or treatment) involved in the case are 
                provided.
                    ``(E) The manufacturer of any drug or other item 
                that is included in the items or services involved in 
                the case.
                    ``(F) Any other party determined under any 
                regulations to have a substantial interest in the case 
                involved.''.
            (3) Effective date.--The amendments made by paragraphs (1) 
        and (2) shall be effective as if included in the enactment of 
        the respective provisions of subtitle C of title V of BIPA, 
        (114 Stat. 2763A-534).
            (4) Transition.--In applying section 1869(g) of the Social 
        Security Act (as added by paragraph (2)), any reference to a 
        medicare administrative contractor shall be deemed to include a 
        reference to a fiscal intermediary under section 1816 of the 
        Social Security Act (42 U.S.C. 1395h) and a carrier under 
        section 1842 of such Act (42 U.S.C. 1395u).

SEC. 834. PREPAYMENT REVIEW.

    (a) In General.--Section 1874A, as added by section 811(a)(1) and 
as amended by sections 812(b), 821(b)(1), and 821(c)(1), is further 
amended by adding at the end the following new subsection:
    ``(h) Conduct of Prepayment Review.--
            ``(1) Conduct of random prepayment review.--
                    ``(A) In general.--A medicare administrative 
                contractor may conduct random prepayment review only to 
                develop a contractor-wide or program-wide claims 
                payment error rates or under such additional 
                circumstances as may be provided under regulations, 
                developed in consultation with providers of services 
                and suppliers.
                    ``(B) Use of standard protocols when conducting 
                prepayment reviews.--When a medicare administrative 
                contractor conducts a random prepayment review, the 
                contractor may conduct such review only in accordance 
                with a standard protocol for random prepayment audits 
                developed by the Secretary.
                    ``(C) Construction.--Nothing in this paragraph 
                shall be construed as preventing the denial of payments 
                for claims actually reviewed under a random prepayment 
                review.
                    ``(D) Random prepayment review.--For purposes of 
                this subsection, the term `random prepayment review' 
                means a demand for the production of records or 
                documentation absent cause with respect to a claim.
            ``(2) Limitations on non-random prepayment review.--
                    ``(A) Limitations on initiation of non-random 
                prepayment review.--A medicare administrative 
                contractor may not initiate non-random prepayment 
                review of a provider of services or supplier based on 
                the initial identification by that provider of services 
                or supplier of an improper billing practice unless 
                there is a likelihood of sustained or high level of 
                payment error (as defined in subsection (i)(3)(A)).
                    ``(B) Termination of non-random prepayment 
                review.--The Secretary shall issue regulations relating 
                to the termination, including termination dates, of 
                non-random prepayment review. Such regulations may vary 
                such a termination date based upon the differences in 
                the circumstances triggering prepayment review.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendment made by subsection (a) shall take effect 1 year after 
        the date of the enactment of this Act.
            (2) Deadline for promulgation of certain regulations.--The 
        Secretary shall first issue regulations under section 1874A(h) 
        of the Social Security Act, as added by subsection (a), by not 
        later than 1 year after the date of the enactment of this Act.
            (3) Application of standard protocols for random prepayment 
        review.--Section 1874A(h)(1)(B) of the Social Security Act, as 
        added by subsection (a), shall apply to random prepayment 
        reviews conducted on or after such date (not later than 1 year 
        after the date of the enactment of this Act) as the Secretary 
        shall specify.
    (c) Application to Fiscal Intermediaries and Carriers.--The 
provisions of section 1874A(h) of the Social Security Act, as added by 
subsection (a), shall apply to each fiscal intermediary under section 
1816 of the Social Security Act (42 U.S.C. 1395h) and each carrier 
under section 1842 of such Act (42 U.S.C. 1395u) in the same manner as 
they apply to medicare administrative contractors under such 
provisions.

SEC. 835. RECOVERY OF OVERPAYMENTS.

    (a) In General.--Section 1893 (42 U.S.C. 1395ddd) is amended by 
adding at the end the following new subsection:
    ``(f) Recovery of Overpayments.--
            ``(1) Use of repayment plans.--
                    ``(A) In general.--If the repayment, within 30 days 
                by a provider of services or supplier, of an 
                overpayment under this title would constitute a 
                hardship (as defined in subparagraph (B)), subject to 
                subparagraph (C), upon request of the provider of 
                services or supplier the Secretary shall enter into a 
                plan with the provider of services or supplier for the 
                repayment (through offset or otherwise) of such 
                overpayment over a period of at least 6 months but not 
                longer than 3 years (or not longer than 5 years in the 
                case of extreme hardship, as determined by the 
                Secretary). Interest shall accrue on the balance 
                through the period of repayment. Such plan shall meet 
                terms and conditions determined to be appropriate by 
                the Secretary.
                    ``(B) Hardship.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the repayment of an 
                        overpayment (or overpayments) within 30 days is 
                        deemed to constitute a hardship if--
                                    ``(I) in the case of a provider of 
                                services that files cost reports, the 
                                aggregate amount of the overpayments 
                                exceeds 10 percent of the amount paid 
                                under this title to the provider of 
                                services for the cost reporting period 
                                covered by the most recently submitted 
                                cost report; or
                                    ``(II) in the case of another 
                                provider of services or supplier, the 
                                aggregate amount of the overpayments 
                                exceeds 10 percent of the amount paid 
                                under this title to the provider of 
                                services or supplier for the previous 
                                calendar year.
                            ``(ii) Rule of application.--The Secretary 
                        shall establish rules for the application of 
                        this subparagraph in the case of a provider of 
                        services or supplier that was not paid under 
                        this title during the previous year or was paid 
                        under this title only during a portion of that 
                        year.
                            ``(iii) Treatment of previous 
                        overpayments.--If a provider of services or 
                        supplier has entered into a repayment plan 
                        under subparagraph (A) with respect to a 
                        specific overpayment amount, such payment 
                        amount under the repayment plan shall not be 
                        taken into account under clause (i) with 
                        respect to subsequent overpayment amounts.
                    ``(C) Exceptions.--Subparagraph (A) shall not apply 
                if--
                            ``(i) the Secretary has reason to suspect 
                        that the provider of services or supplier may 
                        file for bankruptcy or otherwise cease to do 
                        business or discontinue participation in the 
                        program under this title; or
                            ``(ii) there is an indication of fraud or 
                        abuse committed against the program.
                    ``(D) Immediate collection if violation of 
                repayment plan.--If a provider of services or supplier 
                fails to make a payment in accordance with a repayment 
                plan under this paragraph, the Secretary may 
                immediately seek to offset or otherwise recover the 
                total balance outstanding (including applicable 
                interest) under the repayment plan.
                    ``(E) Relation to no fault provision.--Nothing in 
                this paragraph shall be construed as affecting the 
                application of section 1870(c) (relating to no 
                adjustment in the cases of certain overpayments).
            ``(2) Limitation on recoupment.--
                    ``(A) In general.--In the case of a provider of 
                services or supplier that is determined to have 
                received an overpayment under this title and that seeks 
                a reconsideration by a qualified independent contractor 
                on such determination under section 1869(b)(1), the 
                Secretary may not take any action (or authorize any 
                other person, including any medicare contractor, as 
                defined in subparagraph (C)) to recoup the overpayment 
                until the date the decision on the reconsideration has 
                been rendered. If the provisions of section 1869(b)(1) 
                (providing for such a reconsideration by a qualified 
                independent contractor) are not in effect, in applying 
                the previous sentence any reference to such a 
                reconsideration shall be treated as a reference to a 
                redetermination by the fiscal intermediary or carrier 
                involved.
                    ``(B) Collection with interest.--Insofar as the 
                determination on such appeal is against the provider of 
                services or supplier, interest on the overpayment shall 
                accrue on and after the date of the original notice of 
                overpayment. Insofar as such determination against the 
                provider of services or supplier is later reversed, the 
                Secretary shall provide for repayment of the amount 
                recouped plus interest at the same rate as would apply 
                under the previous sentence for the period in which the 
                amount was recouped.
                    ``(C) Medicare contractor defined.--For purposes of 
                this subsection, the term `medicare contractor' has the 
                meaning given such term in section 1889(g).
            ``(3) Limitation on use of extrapolation.--A medicare 
        contractor may not use extrapolation to determine overpayment 
        amounts to be recovered by recoupment, offset, or otherwise 
        unless--
                    ``(A) there is a sustained or high level of payment 
                error (as defined by the Secretary by regulation); or
                    ``(B) documented educational intervention has 
                failed to correct the payment error (as determined by 
                the Secretary).
            ``(4) Provision of supporting documentation.--In the case 
        of a provider of services or supplier with respect to which 
        amounts were previously overpaid, a medicare contractor may 
        request the periodic production of records or supporting 
        documentation for a limited sample of submitted claims to 
        ensure that the previous practice is not continuing.
            ``(5) Consent settlement reforms.--
                    ``(A) In general.--The Secretary may use a consent 
                settlement (as defined in subparagraph (D)) to settle a 
                projected overpayment.
                    ``(B) Opportunity to submit additional information 
                before consent settlement offer.--Before offering a 
                provider of services or supplier a consent settlement, 
                the Secretary shall--
                            ``(i) communicate to the provider of 
                        services or supplier--
                                    ``(I) that, based on a review of 
                                the medical records requested by the 
                                Secretary, a preliminary evaluation of 
                                those records indicates that there 
                                would be an overpayment;
                                    ``(II) the nature of the problems 
                                identified in such evaluation; and
                                    ``(III) the steps that the provider 
                                of services or supplier should take to 
                                address the problems; and
                            ``(ii) provide for a 45-day period during 
                        which the provider of services or supplier may 
                        furnish additional information concerning the 
                        medical records for the claims that had been 
                        reviewed.
                    ``(C) Consent settlement offer.--The Secretary 
                shall review any additional information furnished by 
                the provider of services or supplier under subparagraph 
                (B)(ii). Taking into consideration such information, 
                the Secretary shall determine if there still appears to 
                be an overpayment. If so, the Secretary--
                            ``(i) shall provide notice of such 
                        determination to the provider of services or 
                        supplier, including an explanation of the 
                        reason for such determination; and
                            ``(ii) in order to resolve the overpayment, 
                        may offer the provider of services or 
                        supplier--
                                    ``(I) the opportunity for a 
                                statistically valid random sample; or
                                    ``(II) a consent settlement.
                The opportunity provided under clause (ii)(I) does not 
                waive any appeal rights with respect to the alleged 
                overpayment involved.
                    ``(D) Consent settlement defined.--For purposes of 
                this paragraph, the term `consent settlement' means an 
                agreement between the Secretary and a provider of 
                services or supplier whereby both parties agree to 
                settle a projected overpayment based on less than a 
                statistically valid sample of claims and the provider 
                of services or supplier agrees not to appeal the claims 
                involved.
            ``(6) Notice of over-utilization of codes.--The Secretary 
        shall establish, in consultation with organizations 
        representing the classes of providers of services and 
        suppliers, a process under which the Secretary provides for 
        notice to classes of providers of services and suppliers served 
        by the contractor in cases in which the contractor has 
        identified that particular billing codes may be overutilized by 
        that class of providers of services or suppliers under the 
        programs under this title (or provisions of title XI insofar as 
        they relate to such programs).
            ``(7) Payment audits.--
                    ``(A) Written notice for post-payment audits.--
                Subject to subparagraph (C), if a medicare contractor 
                decides to conduct a post-payment audit of a provider 
                of services or supplier under this title, the 
                contractor shall provide the provider of services or 
                supplier with written notice (which may be in 
                electronic form) of the intent to conduct such an 
                audit.
                    ``(B) Explanation of findings for all audits.--
                Subject to subparagraph (C), if a medicare contractor 
                audits a provider of services or supplier under this 
                title, the contractor shall--
                            ``(i) give the provider of services or 
                        supplier a full review and explanation of the 
                        findings of the audit in a manner that is 
                        understandable to the provider of services or 
                        supplier and permits the development of an 
                        appropriate corrective action plan;
                            ``(ii) inform the provider of services or 
                        supplier of the appeal rights under this title 
                        as well as consent settlement options (which 
                        are at the discretion of the Secretary);
                            ``(iii) give the provider of services or 
                        supplier an opportunity to provide additional 
                        information to the contractor; and
                            ``(iv) take into account information 
                        provided, on a timely basis, by the provider of 
                        services or supplier under clause (iii).
                    ``(C) Exception.--Subparagraphs (A) and (B) shall 
                not apply if the provision of notice or findings would 
                compromise pending law enforcement activities, whether 
                civil or criminal, or reveal findings of law 
                enforcement-related audits.
            ``(8) Standard methodology for probe sampling.--The 
        Secretary shall establish a standard methodology for medicare 
        contractors to use in selecting a sample of claims for review 
        in the case of an abnormal billing pattern.''.
    (b) Effective Dates and Deadlines.--
            (1) Use of repayment plans.--Section 1893(f)(1) of the 
        Social Security Act, as added by subsection (a), shall apply to 
        requests for repayment plans made after the date of the 
        enactment of this Act.
            (2) Limitation on recoupment.--Section 1893(f)(2) of the 
        Social Security Act, as added by subsection (a), shall apply to 
        actions taken after the date of the enactment of this Act.
            (3) Use of extrapolation.--Section 1893(f)(3) of the Social 
        Security Act, as added by subsection (a), shall apply to 
        statistically valid random samples initiated after the date 
        that is 1 year after the date of the enactment of this Act.
            (4) Provision of supporting documentation.--Section 
        1893(f)(4) of the Social Security Act, as added by subsection 
        (a), shall take effect on the date of the enactment of this 
        Act.
            (5) Consent settlement.--Section 1893(f)(5) of the Social 
        Security Act, as added by subsection (a), shall apply to 
        consent settlements entered into after the date of the 
        enactment of this Act.
            (6) Notice of overutilization.--Not later than 1 year after 
        the date of the enactment of this Act, the Secretary shall 
        first establish the process for notice of overutilization of 
        billing codes under section 1893A(f)(6) of the Social Security 
        Act, as added by subsection (a).
            (7) Payment audits.--Section 1893A(f)(7) of the Social 
        Security Act, as added by subsection (a), shall apply to audits 
        initiated after the date of the enactment of this Act.
            (8) Standard for abnormal billing patterns.--Not later than 
        1 year after the date of the enactment of this Act, the 
        Secretary shall first establish a standard methodology for 
        selection of sample claims for abnormal billing patterns under 
        section 1893(f)(8) of the Social Security Act, as added by 
        subsection (a).

SEC. 836. PROVIDER ENROLLMENT PROCESS; RIGHT OF APPEAL.

    (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
            (1) by adding at the end of the heading the following: ``; 
        enrollment processes''; and
            (2) by adding at the end the following new subsection:
    ``(j) Enrollment Process for Providers of Services and Suppliers.--
            ``(1) Enrollment process.--
                    ``(A) In general.--The Secretary shall establish by 
                regulation a process for the enrollment of providers of 
                services and suppliers under this title.
                    ``(B) Deadlines.--The Secretary shall establish by 
                regulation procedures under which there are deadlines 
                for actions on applications for enrollment (and, if 
                applicable, renewal of enrollment). The Secretary shall 
                monitor the performance of medicare administrative 
                contractors in meeting the deadlines established under 
                this subparagraph.
                    ``(C) Consultation before changing provider 
                enrollment forms.--The Secretary shall consult with 
                providers of services and suppliers before making 
                changes in the provider enrollment forms required of 
                such providers and suppliers to be eligible to submit 
                claims for which payment may be made under this title.
            ``(2) Hearing rights in cases of denial or non-renewal.--A 
        provider of services or supplier whose application to enroll 
        (or, if applicable, to renew enrollment) under this title is 
        denied may have a hearing and judicial review of such denial 
        under the procedures that apply under subsection (h)(1)(A) to a 
        provider of services that is dissatisfied with a determination 
        by the Secretary.''.
    (b) Effective Dates.--
            (1) Enrollment process.--The Secretary shall provide for 
        the establishment of the enrollment process under section 
        1866(j)(1) of the Social Security Act, as added by subsection 
        (a)(2), within 6 months after the date of the enactment of this 
        Act.
            (2) Consultation.--Section 1866(j)(1)(C) of the Social 
        Security Act, as added by subsection (a)(2), shall apply with 
        respect to changes in provider enrollment forms made on or 
        after January 1, 2003.
            (3) Hearing rights.--Section 1866(j)(2) of the Social 
        Security Act, as added by subsection (a)(2), shall apply to 
        denials occurring on or after such date (not later than 1 year 
        after the date of the enactment of this Act) as the Secretary 
        specifies.

SEC. 837. PROCESS FOR CORRECTION OF MINOR ERRORS AND OMISSIONS ON 
              CLAIMS WITHOUT PURSUING APPEALS PROCESS.

    The Secretary shall develop, in consultation with appropriate 
medicare contractors (as defined in section 1889(g) of the Social 
Security Act, as inserted by section 821(a)(1)) and representatives of 
providers of services and suppliers, a process whereby, in the case of 
minor errors or omissions (as defined by the Secretary) that are 
detected in the submission of claims under the programs under title 
XVIII of such Act, a provider of services or supplier is given an 
opportunity to correct such an error or omission without the need to 
initiate an appeal. Such process shall include the ability to resubmit 
corrected claims.

SEC. 838. PRIOR DETERMINATION PROCESS FOR CERTAIN ITEMS AND SERVICES; 
              ADVANCE BENEFICIARY NOTICES.

    (a) In General.--Section 1869 (42 U.S.C. 1395ff(b)), as amended by 
sections 521 and 522 of BIPA and section 833(d)(2)(B), is further 
amended by adding at the end the following new subsection:
    ``(h) Prior Determination Process for Certain Items and Services.--
            ``(1) Establishment of process.--
                    ``(A) In general.--With respect to a medicare 
                administrative contractor that has a contract under 
                section 1874A that provides for making payments under 
                this title with respect to eligible items and services 
                described in subparagraph (C), the Secretary shall 
                establish a prior determination process that meets the 
                requirements of this subsection and that shall be 
                applied by such contractor in the case of eligible 
                requesters.
                    ``(B) Eligible requester.--For purposes of this 
                subsection, each of the following shall be an eligible 
                requester:
                            ``(i) A physician, but only with respect to 
                        eligible items and services for which the 
                        physician may be paid directly.
                            ``(ii) An individual entitled to benefits 
                        under this title, but only with respect to an 
                        item or service for which the individual 
                        receives, from the physician who may be paid 
                        directly for the item or service, an advance 
                        beneficiary notice under section 1879(a) that 
                        payment may not be made (or may no longer be 
                        made) for the item or service under this title.
                    ``(C) Eligible items and services.--For purposes of 
                this subsection and subject to paragraph (2), eligible 
                items and services are items and services which are 
                physicians' services (as defined in paragraph (4)(A) of 
                section 1848(f) for purposes of calculating the 
                sustainable growth rate under such section).
            ``(2) Secretarial flexibility.--The Secretary shall 
        establish by regulation reasonable limits on the categories of 
        eligible items and services for which a prior determination of 
        coverage may be requested under this subsection. In 
        establishing such limits, the Secretary may consider the dollar 
        amount involved with respect to the item or service, 
        administrative costs and burdens, and other relevant factors.
            ``(3) Request for prior determination.--
                    ``(A) In general.--Subject to paragraph (2), under 
                the process established under this subsection an 
                eligible requester may submit to the contractor a 
                request for a determination, before the furnishing of 
                an eligible item or service involved as to whether the 
                item or service is covered under this title consistent 
                with the applicable requirements of section 
                1862(a)(1)(A) (relating to medical necessity).
                    ``(B) Accompanying documentation.--The Secretary 
                may require that the request be accompanied by a 
                description of the item or service, supporting 
                documentation relating to the medical necessity for the 
                item or service, and any other appropriate 
                documentation. In the case of a request submitted by an 
                eligible requester who is described in paragraph 
                (1)(B)(ii), the Secretary may require that the request 
                also be accompanied by a copy of the advance 
                beneficiary notice involved.
            ``(4) Response to request.--
                    ``(A) In general.--Under such process, the 
                contractor shall provide the eligible requester with 
                written notice of a determination as to whether--
                            ``(i) the item or service is so covered;
                            ``(ii) the item or service is not so 
                        covered; or
                            ``(iii) the contractor lacks sufficient 
                        information to make a coverage determination.
                If the contractor makes the determination described in 
                clause (iii), the contractor shall include in the 
                notice a description of the additional information 
                required to make the coverage determination.
                    ``(B) Deadline to respond.--Such notice shall be 
                provided within the same time period as the time period 
                applicable to the contractor providing notice of 
                initial determinations on a claim for benefits under 
                subsection (a)(2)(A).
                    ``(C) Informing beneficiary in case of physician 
                request.--In the case of a request in which an eligible 
                requester is not the individual described in paragraph 
                (1)(B)(ii), the process shall provide that the 
                individual to whom the item or service is proposed to 
                be furnished shall be informed of any determination 
                described in clause (ii) (relating to a determination 
                of non-coverage) and the right (referred to in 
                paragraph (6)(B)) to obtain the item or service and 
                have a claim submitted for the item or service.
            ``(5) Effect of determinations.--
                    ``(A) Binding nature of positive determination.--If 
                the contractor makes the determination described in 
                paragraph (4)(A)(i), such determination shall be 
                binding on the contractor in the absence of fraud or 
                evidence of misrepresentation of facts presented to the 
                contractor.
                    ``(B) Notice and right to redetermination in case 
                of a denial.--
                            ``(i) In general.--If the contractor makes 
                        the determination described in paragraph 
                        (4)(A)(ii)--
                                    ``(I) the eligible requester has 
                                the right to a redetermination by the 
                                contractor on the determination that 
                                the item or service is not so covered; 
                                and
                                    ``(II) the contractor shall include 
                                in notice under paragraph (4)(A) a 
                                brief explanation of the basis for the 
                                determination, including on what 
                                national or local coverage or 
                                noncoverage determination (if any) the 
                                determination is based, and the right 
                                to such a redetermination.
                            ``(ii) Deadline for redeterminations.--The 
                        contractor shall complete and provide notice of 
                        such redetermination within the same time 
                        period as the time period applicable to the 
                        contractor providing notice of redeterminations 
                        relating to a claim for benefits under 
                        subsection (a)(3)(C)(ii).
            ``(6) Limitation on further review.--
                    ``(A) In general.--Contractor determinations 
                described in paragraph (4)(A)(ii) or (4)(A)(iii) (and 
                redeterminations made under paragraph (5)(B)), relating 
                to pre-service claims are not subject to further 
                administrative appeal or judicial review under this 
                section or otherwise.
                    ``(B) Decision not to seek prior determination or 
                negative determination does not impact right to obtain 
                services, seek reimbursement, or appeal rights.--
                Nothing in this subsection shall be construed as 
                affecting the right of an individual who--
                            ``(i) decides not to seek a prior 
                        determination under this subsection with 
                        respect to items or services; or
                            ``(ii) seeks such a determination and has 
                        received a determination described in paragraph 
                        (4)(A)(ii),
                from receiving (and submitting a claim for) such items 
                services and from obtaining administrative or judicial 
                review respecting such claim under the other applicable 
                provisions of this section. Failure to seek a prior 
                determination under this subsection with respect to 
                items and services shall not be taken into account in 
                such administrative or judicial review.
                    ``(C) No prior determination after receipt of 
                services.--Once an individual is provided items and 
                services, there shall be no prior determination under 
                this subsection with respect to such items or 
                services.''.
    (b) Effective Date; Transition.--
            (1) Effective date.--The Secretary shall establish the 
        prior determination process under the amendment made by 
        subsection (a) in such a manner as to provide for the 
        acceptance of requests for determinations under such process 
        filed not later than 18 months after the date of the enactment 
        of this Act.
            (2) Transition.--During the period in which the amendment 
        made by subsection (a) has become effective but contracts are 
        not provided under section 1874A of the Social Security Act 
        with medicare administrative contractors, any reference in 
        section 1869(g) of such Act (as added by such amendment) to 
        such a contractor is deemed a reference to a fiscal 
        intermediary or carrier with an agreement under section 1816, 
        or contract under section 1842, respectively, of such Act.
            (3) Limitation on application to sgr.--For purposes of 
        applying section 1848(f)(2)(D) of the Social Security Act (42 
        U.S.C. 1395w-4(f)(2)(D)), the amendment made by subsection (a) 
        shall not be considered to be a change in law or regulation.
    (c) Provisions Relating to Advance Beneficiary Notices; Report on 
Prior Determination Process.--
            (1) Data collection.--The Secretary shall establish a 
        process for the collection of information on the instances in 
        which an advance beneficiary notice (as defined in paragraph 
        (4)) has been provided and on instances in which a beneficiary 
        indicates on such a notice that the beneficiary does not intend 
        to seek to have the item or service that is the subject of the 
        notice furnished.
            (2) Outreach and education.--The Secretary shall establish 
        a program of outreach and education for beneficiaries and 
        providers of services and other persons on the appropriate use 
        of advance beneficiary notices and coverage policies under the 
        medicare program.
            (3) GAO report report on use of advance beneficiary 
        notices.--Not later than 18 months after the date on which 
        section 1869(g) of the Social Security Act (as added by 
        subsection (a)) takes effect, the Comptroller General of the 
        United States shall submit to Congress a report on the use of 
        advance beneficiary notices under title XVIII of such Act. Such 
        report shall include information concerning the providers of 
        services and other persons that have provided such notices and 
        the response of beneficiaries to such notices.
            (4) GAO report on use of prior determination process.--Not 
        later than 18 months after the date on which section 1869(g) of 
        the Social Security Act (as added by subsection (a)) takes 
        effect, the Comptroller General of the United States shall 
        submit to Congress a report on the use of the prior 
        determination process under such section. Such report shall 
        include--
                    (A) information concerning the types of procedures 
                for which a prior determination has been sought, 
                determinations made under the process, and changes in 
                receipt of services resulting from the application of 
                such process; and
                    (B) an evaluation of whether the process was useful 
                for physicians (and other suppliers) and beneficiaries, 
                whether it was timely, and whether the amount of 
                information required was burdensome to physicians and 
                beneficiaries.
            (5) Advance beneficiary notice defined.--In this 
        subsection, the term ``advance beneficiary notice'' means a 
        written notice provided under section 1879(a) of the Social 
        Security Act (42 U.S.C. 1395pp(a)) to an individual entitled to 
        benefits under part A or B of title XVIII of such Act before 
        items or services are furnished under such part in cases where 
        a provider of services or other person that would furnish the 
        item or service believes that payment will not be made for some 
        or all of such items or services under such title.

                  Subtitle E--Miscellaneous Provisions

SEC. 841. POLICY DEVELOPMENT REGARDING EVALUATION AND MANAGEMENT (E & 
              M) DOCUMENTATION GUIDELINES.

    (a) In General.--The Secretary may not implement any new 
documentation guidelines for evaluation and management physician 
services under the title XVIII of the Social Security Act on or after 
the date of the enactment of this Act unless the Secretary--
            (1) has developed the guidelines in collaboration with 
        practicing physicians (including both generalists and 
        specialists) and provided for an assessment of the proposed 
        guidelines by the physician community;
            (2) has established a plan that contains specific goals, 
        including a schedule, for improving the use of such guidelines;
            (3) has conducted appropriate and representative pilot 
        projects under subsection (b) to test modifications to the 
        evaluation and management documentation guidelines;
            (4) finds that the objectives described in subsection (c) 
        will be met in the implementation of such guidelines; and
            (5) has established, and is implementing, a program to 
        educate physicians on the use of such guidelines and that 
        includes appropriate outreach.
The Secretary shall make changes to the manner in which existing 
evaluation and management documentation guidelines are implemented to 
reduce paperwork burdens on physicians.
    (b) Pilot Projects to Test Evaluation and Management Documentation 
Guidelines.--
            (1) In general.--The Secretary shall conduct under this 
        subsection appropriate and representative pilot projects to 
        test new evaluation and management documentation guidelines 
        referred to in subsection (a).
            (2) Length and consultation.--Each pilot project under this 
        subsection shall--
                    (A) be voluntary;
                    (B) be of sufficient length as determined by the 
                Secretary to allow for preparatory physician and 
                medicare contractor education, analysis, and use and 
                assessment of potential evaluation and management 
                guidelines; and
                    (C) be conducted, in development and throughout the 
                planning and operational stages of the project, in 
                consultation with practicing physicians (including both 
                generalists and specialists).
            (3) Range of pilot projects.--Of the pilot projects 
        conducted under this subsection--
                    (A) at least one shall focus on a peer review 
                method by physicians (not employed by a medicare 
                contractor) which evaluates medical record information 
                for claims submitted by physicians identified as 
                statistical outliers relative to definitions published 
                in the Current Procedures Terminology (CPT) code book 
                of the American Medical Association;
                    (B) at least one shall focus on an alternative 
                method to detailed guidelines based on physician 
                documentation of face to face encounter time with a 
                patient;
                    (C) at least one shall be conducted for services 
                furnished in a rural area and at least one for services 
                furnished outside such an area; and
                    (D) at least one shall be conducted in a setting 
                where physicians bill under physicians' services in 
                teaching settings and at least one shall be conducted 
                in a setting other than a teaching setting.
            (4) Banning of targeting of pilot project participants.--
        Data collected under this subsection shall not be used as the 
        basis for overpayment demands or post-payment audits. Such 
        limitation applies only to claims filed as part of the pilot 
        project and lasts only for the duration of the pilot project 
        and only as long as the provider is a participant in the pilot 
        project.
            (5) Study of impact.--Each pilot project shall examine the 
        effect of the new evaluation and management documentation 
        guidelines on--
                    (A) different types of physician practices, 
                including those with fewer than 10 full-time-equivalent 
                employees (including physicians); and
                    (B) the costs of physician compliance, including 
                education, implementation, auditing, and monitoring.
            (6) Periodic reports.--The Secretary shall submit to 
        Congress periodic reports on the pilot projects under this 
        subsection.
    (c) Objectives for Evaluation and Management Guidelines.--The 
objectives for modified evaluation and management documentation 
guidelines developed by the Secretary shall be to--
            (1) identify clinically relevant documentation needed to 
        code accurately and assess coding levels accurately;
            (2) decrease the level of non-clinically pertinent and 
        burdensome documentation time and content in the physician's 
        medical record;
            (3) increase accuracy by reviewers; and
            (4) educate both physicians and reviewers.
    (d) Study of Simpler, Alternative Systems of Documentation for 
Physician Claims.--
            (1) Study.--The Secretary shall carry out a study of the 
        matters described in paragraph (2).
            (2) Matters described.--The matters referred to in 
        paragraph (1) are--
                    (A) the development of a simpler, alternative 
                system of requirements for documentation accompanying 
                claims for evaluation and management physician services 
                for which payment is made under title XVIII of the 
                Social Security Act; and
                    (B) consideration of systems other than current 
                coding and documentation requirements for payment for 
                such physician services.
            (3) Consultation with practicing physicians.--In designing 
        and carrying out the study under paragraph (1), the Secretary 
        shall consult with practicing physicians, including physicians 
        who are part of group practices and including both generalists 
        and specialists.
            (4) Application of hipaa uniform coding requirements.--In 
        developing an alternative system under paragraph (2), the 
        Secretary shall consider requirements of administrative 
        simplification under part C of title XI of the Social Security 
        Act.
            (5) Report to congress.--(A) Not later than October 1, 
        2004, the Secretary shall submit to Congress a report on the 
        results of the study conducted under paragraph (1).
            (B) The Medicare Payment Advisory Commission shall conduct 
        an analysis of the results of the study included in the report 
        under subparagraph (A) and shall submit a report on such 
        analysis to Congress.
    (e) Study on Appropriate Coding of Certain Extended Office 
Visits.--The Secretary shall conduct a study of the appropriateness of 
coding in cases of extended office visits in which there is no 
diagnosis made. Not later than October 1, 2004, the Secretary shall 
submit a report to Congress on such study and shall include 
recommendations on how to code appropriately for such visits in a 
manner that takes into account the amount of time the physician spent 
with the patient.
    (f) Definitions.--In this section--
            (1) the term ``rural area'' has the meaning given that term 
        in section 1886(d)(2)(D) of the Social Security Act, 42 U.S.C. 
        1395ww(d)(2)(D); and
            (2) the term ``teaching settings'' are those settings 
        described in section 415.150 of title 42, Code of Federal 
        Regulations.

SEC. 842. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY AND COVERAGE.

    (a) Improved Coordination Between FDA and CMS on Coverage of 
Breakthrough Medical Devices.--
            (1) In general.--Upon request by an applicant and to the 
        extent feasible (as determined by the Secretary), the Secretary 
        shall, in the case of a class III medical device that is 
        subject to premarket approval under section 515 of the Federal 
        Food, Drug, and Cosmetic Act, ensure the sharing of appropriate 
        information from the review for application for premarket 
        approval conducted by the Food and Drug Administration for 
        coverage decisions under title XVIII of the Social Security 
        Act.
            (2) Publication of plan.--Not later than 6 months after the 
        date of the enactment of this Act, the Secretary shall submit 
        to appropriate Committees of Congress a report that contains 
        the plan for improving such coordination and for shortening the 
        time lag between the premarket approval by the Food and Drug 
        Administration and coding and coverage decisions by the Centers 
        for Medicare & Medicaid Services.
            (3) Construction.--Nothing in this subsection shall be 
        construed as changing the criteria for coverage of a medical 
        device under title XVIII of the Social Security Act nor 
        premarket approval by the Food and Drug Administration and 
        nothing in this subsection shall be construed to increase 
        premarket approval application requirements under the Federal 
        Food, Drug, and Cosmetic Act.
    (b) Council for Technology and Innovation.--Section 1868 (42 U.S.C. 
1395ee), as amended by section 823(a), is amended by adding at the end 
the following new subsection:
    ``(c) Council for Technology and Innovation.--
            ``(1) Establishment.--The Secretary shall establish a 
        Council for Technology and Innovation within the Centers for 
        Medicare & Medicaid Services (in this section referred to as 
        `CMS').
            ``(2) Composition.--The Council shall be composed of senior 
        CMS staff and clinicians and shall be chaired by the Executive 
        Coordinator for Technology and Innovation (appointed or 
        designated under paragraph (4)).
            ``(3) Duties.--The Council shall coordinate the activities 
        of coverage, coding, and payment processes under this title 
        with respect to new technologies and procedures, including new 
        drug therapies, and shall coordinate the exchange of 
        information on new technologies between CMS and other entities 
        that make similar decisions.
            ``(4) Executive coordinator for technology and 
        innovation.--The Secretary shall appoint (or designate) a 
        noncareer appointee (as defined in section 3132(a)(7) of title 
        5, United States Code) who shall serve as the Executive 
        Coordinator for Technology and Innovation. Such executive 
        coordinator shall report to the Administrator of CMS, shall 
        chair the Council, shall oversee the execution of its duties, 
        and shall serve as a single point of contact for outside groups 
        and entities regarding the coverage, coding, and payment 
        processes under this title.''.
    (c) GAO Study on Improvements in External Data Collection for Use 
in the Medicare Inpatient Payment System.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study that analyzes which external data can be 
        collected in a shorter time frame by the Centers for Medicare & 
        Medicaid Services for use in computing payments for inpatient 
        hospital services. The study may include an evaluation of the 
        feasibility and appropriateness of using of quarterly samples 
        or special surveys or any other methods. The study shall 
        include an analysis of whether other executive agencies, such 
        as the Bureau of Labor Statistics in the Department of 
        Commerce, are best suited to collect this information.
            (2) Report.--By not later than October 1, 2003, the 
        Comptroller General shall submit a report to Congress on the 
        study under paragraph (1).
    (d) IOM Study on Local Coverage Determinations.--
            (1) Study.--The Secretary shall enter into an arrangement 
        with the Institute of Medicine of the National Academy of 
        Sciences under which the Institute shall conduct a study on 
        local coverage determinations (including the application of 
        local medical review policies) under the medicare program under 
        title XVIII of the Social Security Act. Such study shall 
        examine--
                    (A) the consistency of the definitions used in such 
                determinations;
                    (B) the types of evidence on which such 
                determinations are based, including medical and 
                scientific evidence;
                    (C) the advantages and disadvantages of local 
                coverage decisionmaking, including the flexibility it 
                offers for ensuring timely patient access to new 
                medical technology for which data are still be 
                collected;
                    (D) the manner in which the local coverage 
                determination process is used to develop data needed 
                for a national coverage determination, including the 
                need for collection of such data within a protocol and 
                informed consent by individuals entitled to benefits 
                under part A of title XVIII of the Social Security Act, 
                or enrolled under part B of such title, or both; and
                    (E) the advantages and disadvantages of maintaining 
                local medicare contractor advisory committees that can 
                advise on local coverage decisions based on an open, 
                collaborative public process.
            (2) Report.--Such arrangement shall provide that the 
        Institute shall submit to the Secretary a report on such study 
        by not later than 3 years after the date of the enactment of 
        this Act. The Secretary shall promptly transmit a copy of such 
        report to Congress.
    (e) Methods for Determining Payment Basis For New Lab Tests.--
Section 1833(h) (42 U.S.C. 1395l(h)) is amended by adding at the end 
the following:
    ``(8)(A) The Secretary shall establish by regulation procedures for 
determining the basis for, and amount of, payment under this subsection 
for any clinical diagnostic laboratory test with respect to which a new 
or substantially revised HCPCS code is assigned on or after January 1, 
2004 (in this paragraph referred to as `new tests').
    ``(B) Determinations under subparagraph (A) shall be made only 
after the Secretary--
            ``(i) makes available to the public (through an Internet 
        site and other appropriate mechanisms) a list that includes any 
        such test for which establishment of a payment amount under 
        this subsection is being considered for a year;
            ``(ii) on the same day such list is made available, causes 
        to have published in the Federal Register notice of a meeting 
        to receive comments and recommendations (and data on which 
        recommendations are based) from the public on the appropriate 
        basis under this subsection for establishing payment amounts 
        for the tests on such list;
            ``(iii) not less than 30 days after publication of such 
        notice convenes a meeting, that includes representatives of 
        officials of the Centers for Medicare & Medicaid Services 
        involved in determining payment amounts, to receive such 
        comments and recommendations (and data on which the 
        recommendations are based);
            ``(iv) taking into account the comments and recommendations 
        (and accompanying data) received at such meeting, develops and 
        makes available to the public (through an Internet site and 
        other appropriate mechanisms) a list of proposed determinations 
        with respect to the appropriate basis for establishing a 
        payment amount under this subsection for each such code, 
        together with an explanation of the reasons for each such 
        determination, the data on which the determinations are based, 
        and a request for public written comments on the proposed 
        determination; and
            ``(v) taking into account the comments received during the 
        public comment period, develops and makes available to the 
        public (through an Internet site and other appropriate 
        mechanisms) a list of final determinations of the payment 
        amounts for such tests under this subsection, together with the 
        rationale for each such determination, the data on which the 
        determinations are based, and responses to comments and 
        suggestions received from the public.
    ``(C) Under the procedures established pursuant to subparagraph 
(A), the Secretary shall--
            ``(i) set forth the criteria for making determinations 
        under subparagraph (A); and
            ``(ii) make available to the public the data (other than 
        proprietary data) considered in making such determinations.
    ``(D) The Secretary may convene such further public meetings to 
receive public comments on payment amounts for new tests under this 
subsection as the Secretary deems appropriate.
    ``(E) For purposes of this paragraph:
            ``(i) The term `HCPCS' refers to the Health Care Procedure 
        Coding System.
            ``(ii) A code shall be considered to be `substantially 
        revised' if there is a substantive change to the definition of 
        the test or procedure to which the code applies (such as a new 
        analyte or a new methodology for measuring an existing analyte-
        specific test).''.

SEC. 843. TREATMENT OF HOSPITALS FOR CERTAIN SERVICES UNDER MEDICARE 
              SECONDARY PAYOR (MSP) PROVISIONS.

    (a) In General.--The Secretary shall not require a hospital 
(including a critical access hospital) to ask questions (or obtain 
information) relating to the application of section 1862(b) of the 
Social Security Act (relating to medicare secondary payor provisions) 
in the case of reference laboratory services described in subsection 
(b), if the Secretary does not impose such requirement in the case of 
such services furnished by an independent laboratory.
    (b) Reference Laboratory Services Described.--Reference laboratory 
services described in this subsection are clinical laboratory 
diagnostic tests (or the interpretation of such tests, or both) 
furnished without a face-to-face encounter between the individual 
entitled to benefits under part A or enrolled under part B, or both, 
and the hospital involved and in which the hospital submits a claim 
only for such test or interpretation.

SEC. 844. EMTALA IMPROVEMENTS.

    (a) Payment for EMTALA-Mandated Screening and Stabilization 
Services.--
            (1) In general.--Section 1862 (42 U.S.C. 1395y) is amended 
        by inserting after subsection (c) the following new subsection:
    ``(d) For purposes of subsection (a)(1)(A), in the case of any item 
or service that is required to be provided pursuant to section 1867 to 
an individual who is entitled to benefits under this title, 
determinations as to whether the item or service is reasonable and 
necessary shall be made on the basis of the information available to 
the treating physician or practitioner (including the patient's 
presenting symptoms or complaint) at the time the item or service was 
ordered or furnished by the physician or practitioner (and not on the 
patient's principal diagnosis). When making such determinations with 
respect to such an item or service, the Secretary shall not consider 
the frequency with which the item or service was provided to the 
patient before or after the time of the admission or visit.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to items and services furnished on or after January 
        1, 2003.
    (b) Notification of Providers When EMTALA Investigation Closed.--
Section 1867(d) (42 U.S.C. 42 U.S.C. 1395dd(d)) is amended by adding at 
the end the following new paragraph:
            ``(4) Notice upon closing an investigation.--The Secretary 
        shall establish a procedure to notify hospitals and physicians 
        when an investigation under this section is closed.''.
    (c) Prior Review by Peer Review Organizations in EMTALA Cases 
Involving Termination of Participation.--
            (1) In general.--Section 1867(d)(3) (42 U.S.C. 
        1395dd(d)(3)) is amended--
                    (A) in the first sentence, by inserting ``or in 
                terminating a hospital's participation under this 
                title'' after ``in imposing sanctions under paragraph 
                (1)''; and
                    (B) by adding at the end the following new 
                sentences: ``Except in the case in which a delay would 
                jeopardize the health or safety of individuals, the 
                Secretary shall also request such a review before 
                making a compliance determination as part of the 
                process of terminating a hospital's participation under 
                this title for violations related to the 
                appropriateness of a medical screening examination, 
                stabilizing treatment, or an appropriate transfer as 
                required by this section, and shall provide a period of 
                5 days for such review. The Secretary shall provide a 
                copy of the organization's report to the hospital or 
                physician consistent with confidentiality requirements 
                imposed on the organization under such part B.''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to terminations of participation initiated on or 
        after the date of the enactment of this Act.

SEC. 845. EMERGENCY MEDICAL TREATMENT AND LABOR ACT (EMTALA) TECHNICAL 
              ADVISORY GROUP.

    (a) Establishment.--The Secretary shall establish a Technical 
Advisory Group (in this section referred to as the ``Advisory Group'') 
to review issues related to the Emergency Medical Treatment and Labor 
Act (EMTALA) and its implementation. In this section, the term 
``EMTALA'' refers to the provisions of section 1867 of the Social 
Security Act (42 U.S.C. 1395dd).
    (b) Membership.--The Advisory Group shall be composed of 19 
members, including the Administrator of the Centers for Medicare & 
Medicaid Services and the Inspector General of the Department of Health 
and Human Services and of which--
            (1) 4 shall be representatives of hospitals, including at 
        least one public hospital, that have experience with the 
        application of EMTALA and at least 2 of which have not been 
        cited for EMTALA violations;
            (2) 7 shall be practicing physicians drawn from the fields 
        of emergency medicine, cardiology or cardiothoracic surgery, 
        orthopedic surgery, neurosurgery, obstetrics-gynecology, and 
        psychiatry, with not more than one physician from any 
        particular field;
            (3) 2 shall represent patients;
            (4) 2 shall be staff involved in EMTALA investigations from 
        different regional offices of the Centers for Medicare & 
        Medicaid Services; and
            (5) 1 shall be from a State survey office involved in 
        EMTALA investigations and 1 shall be from a peer review 
        organization, both of whom shall be from areas other than the 
        regions represented under paragraph (4).
In selecting members described in paragraphs (1) through (3), the 
Secretary shall consider qualified individuals nominated by 
organizations representing providers and patients.
    (c) General Responsibilities.--The Advisory Group--
            (1) shall review EMTALA regulations;
            (2) may provide advice and recommendations to the Secretary 
        with respect to those regulations and their application to 
        hospitals and physicians;
            (3) shall solicit comments and recommendations from 
        hospitals, physicians, and the public regarding the 
        implementation of such regulations; and
            (4) may disseminate information on the application of such 
        regulations to hospitals, physicians, and the public.
    (d) Administrative Matters.--
            (1) Chairperson.--The members of the Advisory Group shall 
        elect a member to serve as chairperson of the Advisory Group 
        for the life of the Advisory Group.
            (2) Meetings.--The Advisory Group shall first meet at the 
        direction of the Secretary. The Advisory Group shall then meet 
        twice per year and at such other times as the Advisory Group 
        may provide.
    (e) Termination.--The Advisory Group shall terminate 30 months 
after the date of its first meeting.
    (f) Waiver of Administrative Limitation.--The Secretary shall 
establish the Advisory Group notwithstanding any limitation that may 
apply to the number of advisory committees that may be established 
(within the Department of Health and Human Services or otherwise).

SEC. 846. AUTHORIZING USE OF ARRANGEMENTS WITH OTHER HOSPICE PROGRAMS 
              TO PROVIDE CORE HOSPICE SERVICES IN CERTAIN 
              CIRCUMSTANCES.

    (a) In General.--Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is 
amended by adding at the end the following new subparagraph:
    ``(D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high patient loads, 
staffing shortages due to illness or other events, or temporary travel 
of a patient outside a hospice program's service area, a hospice 
program may enter into arrangements with another hospice program for 
the provision by that other program of services described in paragraph 
(2)(A)(ii)(I). The provisions of paragraph (2)(A)(ii)(II) shall apply 
with respect to the services provided under such arrangements.''.
    (b) Conforming Payment Provision.--Section 1814(i) (42 U.S.C. 
1395f(i)), as amended by section 421(b), is amended by adding at the 
end the following new paragraph:
    ``(5) In the case of hospice care provided by a hospice program 
under arrangements under section 1861(dd)(5)(D) made by another hospice 
program, the hospice program that made the arrangements shall bill and 
be paid for the hospice care.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to hospice care provided on or after the date of the enactment of 
this Act.

SEC. 847. APPLICATION OF OSHA BLOODBORNE PATHOGENS STANDARD TO CERTAIN 
              HOSPITALS.

    (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
            (1) in subsection (a)(1)--
                    (A) in subparagraph (R), by striking ``and'' at the 
                end;
                    (B) in subparagraph (S), by striking the period at 
                the end and inserting ``, and''; and
                    (C) by inserting after subparagraph (S) the 
                following new subparagraph:
            ``(T) in the case of hospitals that are not otherwise 
        subject to the Occupational Safety and Health Act of 1970, to 
        comply with the Bloodborne Pathogens standard under section 
        1910.1030 of title 29 of the Code of Federal Regulations (or as 
        subsequently redesignated).''; and
            (2) by adding at the end of subsection (b) the following 
        new paragraph:
    ``(4)(A) A hospital that fails to comply with the requirement of 
subsection (a)(1)(T) (relating to the Bloodborne Pathogens standard) is 
subject to a civil money penalty in an amount described in subparagraph 
(B), but is not subject to termination of an agreement under this 
section.
    ``(B) The amount referred to in subparagraph (A) is an amount that 
is similar to the amount of civil penalties that may be imposed under 
section 17 of the Occupational Safety and Health Act of 1970 for a 
violation of the Bloodborne Pathogens standard referred to in 
subsection (a)(1)(T) by a hospital that is subject to the provisions of 
such Act.
    ``(C) A civil money penalty under this paragraph shall be imposed 
and collected in the same manner as civil money penalties under 
subsection (a) of section 1128A are imposed and collected under that 
section.''.
    (b) Effective Date.--The amendments made by this subsection (a) 
shall apply to hospitals as of July 1, 2003.

SEC. 848. BIPA-RELATED TECHNICAL AMENDMENTS AND CORRECTIONS.

    (a) Technical Amendments Relating to Advisory Committee under BIPA 
Section 522.--(1) Subsection (i) of section 1114 (42 U.S.C. 1314)--
            (A) is transferred to section 1862 and added at the end of 
        such section; and
            (B) is redesignated as subsection (j).
    (2) Section 1862 (42 U.S.C. 1395y) is amended--
            (A) in the last sentence of subsection (a), by striking 
        ``established under section 1114(f)''; and
            (B) in subsection (j), as so transferred and redesignated--
                    (i) by striking ``under subsection (f)''; and
                    (ii) by striking ``section 1862(a)(1)'' and 
                inserting ``subsection (a)(1)''.
    (b) Terminology Corrections.--(1) Section 1869(c)(3)(I)(ii) (42 
U.S.C. 1395ff(c)(3)(I)(ii)), as amended by section 521 of BIPA, is 
amended--
            (A) in subclause (III), by striking ``policy'' and 
        inserting ``determination''; and
            (B) in subclause (IV), by striking ``medical review 
        policies'' and inserting ``coverage determinations''.
    (2) Section 1852(a)(2)(C) (42 U.S.C. 1395w-22(a)(2)(C)) is amended 
by striking ``policy'' and ``policy'' and inserting ``determination'' 
each place it appears and ``determination'', respectively.
    (c) Reference Corrections.--Section 1869(f)(4) (42 U.S.C. 
1395ff(f)(4)), as added by section 522 of BIPA, is amended--
            (1) in subparagraph (A)(iv), by striking ``subclause (I), 
        (II), or (III)'' and inserting ``clause (i), (ii), or (iii)'';
            (2) in subparagraph (B), by striking ``clause (i)(IV)'' and 
        ``clause (i)(III)'' and inserting ``subparagraph (A)(iv)'' and 
        ``subparagraph (A)(iii)'', respectively; and
            (3) in subparagraph (C), by striking ``clause (i)'', 
        ``subclause (IV)'' and ``subparagraph (A)'' and inserting 
        ``subparagraph (A)'', ``clause (iv)'' and ``paragraph (1)(A)'', 
        respectively each place it appears.
    (d) Other Corrections.--Effective as if included in the enactment 
of section 521(c) of BIPA, section 1154(e) (42 U.S.C. 1320c-3(e)) is 
amended by striking paragraph (5).
    (e) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall be effective as if included in the enactment 
of BIPA.

SEC. 849. CONFORMING AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

    The first sentence of section 1128(c)(3)(B) (42 U.S.C. 1320a-
7(c)(3)(B)) is amended to read as follows: ``Subject to subparagraph 
(G), in the case of an exclusion under subsection (a), the minimum 
period of exclusion shall be not less than five years, except that, 
upon the request of the administrator of a Federal health care program 
(as defined in section 1128B(f)) who determines that the exclusion 
would impose a hardship on individuals entitled to benefits under part 
A of title XVIII or enrolled under part B of such title, or both, the 
Secretary may waive the exclusion under subsection (a)(1), (a)(3), or 
(a)(4) with respect to that program in the case of an individual or 
entity that is the sole community physician or sole source of essential 
specialized services in a community.''.

SEC. 850. TREATMENT OF CERTAIN DENTAL CLAIMS.

    (a) In General.--Section 1862 (42 U.S.C. 1395y) is amended by 
adding after subsection (g) the following new subsection:
    ``(h)(1) Subject to paragraph (2), a group health plan (as defined 
in subsection (a)(1)(A)(v)) providing supplemental or secondary 
coverage to individuals also entitled to services under this title 
shall not require a medicare claims determination under this title for 
dental benefits specifically excluded under subsection (a)(12) as a 
condition of making a claims determination for such benefits under the 
group health plan.
    ``(2) A group health plan may require a claims determination under 
this title in cases involving or appearing to involve inpatient dental 
hospital services or dental services expressly covered under this title 
pursuant to actions taken by the Secretary.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date that is 60 days after the date of the enactment 
of this Act.

SEC. 851. ANNUAL PUBLICATION OF LIST OF NATIONAL COVERAGE 
              DETERMINATIONS.

    The Secretary shall provide, in an appropriate annual publication 
available to the public, a list of national coverage determinations 
made under title XVIII of the Social Security Act in the previous year 
and information on how to get more information with respect to such 
determinations.

                     TITLE IX--MEDICAID PROVISIONS

SEC. 901. NATIONAL BIPARTISAN COMMISSION ON THE FUTURE OF MEDICAID.

    (a) Establishment.--There is established a commission to be known 
as the National Bipartisan Commission on the Future of Medicaid (in 
this section referred to as the ``Commission'').
    (b) Duties of the Commission.--The Commission shall--
            (1) review and analyze the long-term financial condition of 
        the medicaid program under title XIX of the Social Security Act 
        (42 U.S.C. 1396 et seq.);
            (2) identify the factors that are causing, and the 
        consequences of, increases in costs under the medicaid program, 
        including--
                    (A) the impact of these cost increases upon State 
                budgets, funding for other State programs, and levels 
                of State taxes necessary to fund growing expenditures 
                under the medicaid program;
                    (B) the financial obligations of the Federal 
                government arising from the Federal matching 
                requirement for expenditures under the medicaid 
                program; and
                    (C) the size and scope of the current program and 
                how the program has evolved over time;
            (3) analyze potential policies that will ensure both the 
        financial integrity of the medicaid program and the provision 
        of appropriate benefits under such program;
            (4) make recommendations for establishing incentives and 
        structures to promote enhanced efficiencies and ways of 
        encouraging innovative State policies under the medicaid 
        program;
            (5) make recommendations for establishing the appropriate 
        balance between benefits covered, payments to providers, State 
        and Federal contributions and, where appropriate, recipient 
        cost-sharing obligations;
            (6) make recommendations on the impact of promoting 
        increased utilization of competitive, private enterprise models 
        to contain program cost growth, through enhanced utilization of 
        private plans, pharmacy benefit managers, and other methods 
        currently being used to contain private sector health-care 
        costs;
            (7) make recommendations on the financing of prescription 
        drug benefits currently covered under medicaid programs, 
        including analysis of the current Federal manufacturer rebate 
        program, its impact upon both private market prices as well as 
        those paid by other government purchasers, recent State efforts 
        to negotiate additional supplemental manufacturer rebates and 
        the ability of pharmacy benefit managers to lower drug costs;
            (8) review and analyze such other matters relating to the 
        medicaid program as the Commission deems appropriate; and
            (9) analyze the impact of impending demographic changes 
        upon medicaid benefits, including long term care services, and 
        make recommendations for how best to appropriately divide State 
        and Federal responsibilities for funding these benefits.
    (c) Membership.--
            (1) Number and appointment.--The Commission shall be 
        composed of 17 members, of whom--
                    (A) four shall be appointed by the President;
                    (B) six shall be appointed by the Majority Leader 
                of the Senate, in consultation with the Minority Leader 
                of the Senate, of whom not more than 4 shall be of the 
                same political party;
                    (C) six shall be appointed by the Speaker of the 
                House of Representatives, in consultation with the 
                Minority Leader of the House of Representatives, of 
                whom not more than 4 shall be of the same political 
                party; and
                    (D) one, who shall serve as Chairman of the 
                Commission, appointed jointly by the President, 
                Majority Leader of the Senate, and the Speaker of the 
                House of Representatives.
            (2) Deadline for appointment.--Members of the Commission 
        shall be appointed by not later than December 1, 2002.
            (3) Terms of appointment.--The term of any appointment 
        under paragraph (1) to the Commission shall be for the life of 
        the Commission.
            (4) Meetings.--The Commission shall meet at the call of its 
        Chairman or a majority of its members.
            (5) Quorum.--A quorum shall consist of 8 members of the 
        Commission, except that 4 members may conduct a hearing under 
        subsection (e).
            (6) Vacancies.--A vacancy on the Commission shall be filled 
        in the same manner in which the original appointment was made 
        not later than 30 days after the Commission is given notice of 
        the vacancy and shall not affect the power of the remaining 
        members to execute the duties of the Commission.
            (7) Compensation.--Members of the Commission shall receive 
        no additional pay, allowances, or benefits by reason of their 
        service on the Commission.
            (8) Expenses.--Each member of the Commission shall receive 
        travel expenses and per diem in lieu of subsistence in 
        accordance with sections 5702 and 5703 of title 5, United 
        States Code.
    (d) Staff and Support Services.--
            (1) Executive director.--
                    (A) Appointment.--The Chairman shall appoint an 
                executive director of the Commission.
                    (B) Compensation.--The executive director shall be 
                paid the rate of basic pay for level V of the Executive 
                Schedule.
            (2) Staff.--With the approval of the Commission, the 
        executive director may appoint such personnel as the executive 
        director considers appropriate.
            (3) Applicability of civil service laws.--The staff of the 
        Commission shall be appointed without regard to the provisions 
        of title 5, United States Code, governing appointments in the 
        competitive service, and shall be paid without regard to the 
        provisions of chapter 51 and subchapter III of chapter 53 of 
        such title (relating to classification and General Schedule pay 
        rates).
            (4) Experts and consultants.--With the approval of the 
        Commission, the executive director may procure temporary and 
        intermittent services under section 3109(b) of title 5, United 
        States Code.
            (5) Physical facilities.--The Administrator of the General 
        Services Administration shall locate suitable office space for 
        the operation of the Commission. The facilities shall serve as 
        the headquarters of the Commission and shall include all 
        necessary equipment and incidentals required for the proper 
        functioning of the Commission.
    (e) Powers of Commission.--
            (1) Hearings and other activities.--For the purpose of 
        carrying out its duties, the Commission may hold such hearings 
        and undertake such other activities as the Commission 
        determines to be necessary to carry out its duties.
            (2) Studies by gao.--Upon the request of the Commission, 
        the Comptroller General shall conduct such studies or 
        investigations as the Commission determines to be necessary to 
        carry out its duties.
            (3) Cost estimates by congressional budget office and 
        office of the chief actuary of cms.--
                    (A) The Director of the Congressional Budget Office 
                or the Chief Actuary of the Centers for Medicare & 
                Medicaid Services, or both, shall provide to the 
                Commission, upon the request of the Commission, such 
                cost estimates as the Commission determines to be 
                necessary to carry out its duties.
                    (B) The Commission shall reimburse the Director of 
                the Congressional Budget Office for expenses relating 
                to the employment in the office of the Director of such 
                additional staff as may be necessary for the Director 
                to comply with requests by the Commission under 
                subparagraph (A).
            (4) Detail of federal employees.--Upon the request of the 
        Commission, the head of any Federal agency is authorized to 
        detail, without reimbursement, any of the personnel of such 
        agency to the Commission to assist the Commission in carrying 
        out its duties. Any such detail shall not interrupt or 
        otherwise affect the civil service status or privileges of the 
        Federal employee.
            (5) Technical assistance.--Upon the request of the 
        Commission, the head of a Federal agency shall provide such 
        technical assistance to the Commission as the Commission 
        determines to be necessary to carry out its duties.
            (6) Use of mails.--The Commission may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies and shall, for purposes of the frank, be 
        considered a commission of Congress as described in section 
        3215 of title 39, United States Code.
            (7) Obtaining information.--The Commission may secure 
        directly from any Federal agency information necessary to 
        enable it to carry out its duties, if the information may be 
        disclosed under section 552 of title 5, United States Code. 
        Upon request of the Chairman of the Commission, the head of 
        such agency shall furnish such information to the Commission.
            (8) Administrative support services.--Upon the request of 
        the Commission, the Administrator of General Services shall 
        provide to the Commission on a reimbursable basis such 
        administrative support services as the Commission may request.
            (9) Printing.--For purposes of costs relating to printing 
        and binding, including the cost of personnel detailed from the 
        Government Printing Office, the Commission shall be deemed to 
        be a committee of the Congress.
    (f) Report.--Not later than March 1, 2004, the Commission shall 
submit a report to the President and Congress which shall contain a 
detailed statement of the recommendations, findings, and conclusions of 
the Commission.
    (g) Termination.--The Commission shall terminate 30 days after the 
date of submission of the report required in subsection (f).
    (h) Authorization of Appropriations.--There are authorized to be 
appropriated $1,500,000 to carry out this section.

SEC. 902. DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS.

    Section 1923(f)(3) (42 U.S.C. 1396r-4(f)(3)) is amended--
            (1) in subparagraph (A), by amending subparagraph (A) to 
        read as follows:
                    ``(A) In general.--The DSH allotment for any 
                State--
                            ``(i) for fiscal year 2003 is equal to the 
                        DSH allotment for the State for fiscal year 
                        2001 under the table in paragraph (2), without 
                        regard to paragraph (4), increased, subject to 
                        subparagraph (B) and paragraph (5), by the 
                        percentage change in the consumer price index 
                        for all urban consumers (all items; U.S. city 
                        average), for fiscal year 2001; and
                            ``(ii) for each succeeding fiscal year is 
                        equal to the DSH allotment for the State for 
                        the previous fiscal year under this 
                        subparagraph increased, subject to subparagraph 
                        (B) and paragraph (5), by 1.7 percent or, in 
                        the case of fiscal years beginning with the 
                        fiscal year specified in subparagraph (C) for 
                        that State, the percentage change in the 
                        consumer price index for all urban consumers 
                        (all items; U.S. city average), for the 
                        previous fiscal year.''; and
            (2) by adding at the end the following new subparagraph:
                    ``(C) Fiscal year specified.--For purposes of 
                subparagraph (A)(ii), the fiscal year specified in this 
                subparagraph for a State is the first fiscal year for 
                which the Secretary estimates that the DSH allotment 
                for that State will equal (or no longer exceed) the DSH 
                allotment for that State under the law as in effect 
                before the date of the enactment of this 
                subparagraph.''.

SEC. 903. MEDICAID PHARMACY ASSISTANCE PROGRAM.

    Title XIX is amended--
            (1) by redesignating section 1935 as section 1936; and
            (2) by inserting after section 1934 the following new 
        section:

                     ``pharmacy assistance program

    ``Sec. 1936. (a) In General.--A State plan under this title may 
provide assistance, consistent with this section, to pharmacies in 
implementing the new prescription drug benefit under part D of title 
XVIII.
    ``(b) Use of Funds.--Such grants may be provided to assist 
pharmacies--
            ``(1) in complying with requirements relating to electronic 
        prescribing;
            ``(2) in prospective drug utilization review; and
            ``(3) in developing innovative medication therapy 
        management programs using information technology.
    ``(c) Condition for Receipt.--A pharmacy is not eligible for a 
grant under this section unless the pharmacy demonstrates how it will 
operate a program that will work effectively with patients to reduce 
adverse drug reactions and medical errors. No grant shall be awarded 
under this section before January 1, 2004.
    (d) Priorities.--In awarding grants under this section, a State 
shall take into account and give priority to the needs of small or 
rural pharmacies and to pharmacies which service underserved areas.
    ``(e) Funding.--
            ``(1) Treatment as medical assistance.--Subject to 
        paragraph (2), amounts provided under grants by a State under 
        this section (and the reasonable administrative expenses of a 
        State in carrying out this section, not to exceed 10 percent of 
        the total amount awarded as grants by a State) shall be treated 
        as the provision of medical assistance for purposes of section 
        1903. In applying section 1903(a)(1) with respect to such 
        assistance, the Federal medical assistance percentage is deemed 
        to be 100 percent.
            ``(2) Limitation and allotment.--
                    ``(A) Limitation.--The total amount for which 
                Federal financial participation is available under 
                section 1903(a) for grants and administrative expenses 
                under this section in calendar quarters in any fiscal 
                year is limited to $150,000,000 in each of fiscal years 
                2004 through 2007.
                    ``(B) Allocation.--The Secretary shall provide a 
                method for the allocation of the amount of funds 
                described in subparagraph (A) in each fiscal year among 
                the States. Such method shall take into account the 
                distribution among States of priority pharmacies 
                specified in subsection (d).
            ``(3) Requirement for application.--The preceding 
        provisions of this section shall only apply to a State if the 
        State has filed with the Secretary an amendment to its State 
        plan that provides for the awarding of grants under this 
        section that is consistent with the requirements of this 
        section.''.

            Passed the House of Representatives June 28 (legislative 
      day, June 27), 2002.

            Attest:

                                                                 Clerk.